History Repeating: In Goldman Sachs We Cannot Trust...

GOLDMAN SACHS BUSINESS PRINCIPLES ( # 5 of 10)

"We stress creativity and imagination in everything we do. While recognizing that the old way may still be the best way, we constantly strive to find a better solution to a client's problems. We pride ourselves on having pioneered many of the practices and techniques that have become standard in the industry. -Goldman-Sachs Website, 2009.

HISTORY:

Goldman-Sachs is a financial institution that survived the Great Depression. John Kenneth Galbraith in his popular book, The Great Crash 1929 has a chapter dedicated exclusively to them entitled: In Goldman-Sachs We Trust.

Here we see a pattern emerging dating back nearly a century:

1928:

"Goldman, Sachs, and Company (GS&C) created a new venture called "Goldman, Sachs, Trading Company" (GSTC) and originally issued 1M shares at $100/share on Dec 4, 1928 but GS&C bought it all and then sold 90% of it to the public for $104 [apparently thinking this was a way to make a quick buck -- they had not yet learned about the concept of "leverage" as it is used/abused today]. Only 2 months later (Feb 21, 1929) GSTC merged with a company called Financial & Industrial Securities Corp. -- the resulting assets were $235M. Just before the merger, Feb 2 the stock was $136.50 and 5 days later on Feb 7 it was $222.50"
Massive value increase even though tangible real value was much less. Incredible spikes seem to follow the firm. Maybe they have the Midas touch?

“This remarkable premium was not the undiluted result of public enthusiasm for the financial genius of Goldman, Sachs. Goldman, Sachs had considerable enthusiasm for itself, and the Trading Corporation was buying heavily of its own securities. By March 14 it had bought 560,724 shares of its own stock for a total outlay of $57,021,936. This, in turn, had boomed their value. However, perhaps foreseeing the exiguous character of an investment company which had it investments all in its own common stock, the Trading Corporation stopped buying itself in March. Then it resold part of the stock to William Crapo Durant, who re-resold it to the public as opportunity allowed.”

1929:

Seven months later, after the October crash (including a 2:1 stock split), the price of the stock ultimately fell to approximately 1 3/4. The Goldman-Sachs Trading Corporation (GSTC) was an investment trust, a forerunner of the modern mutual fund. According to Galbraith, Goldman-Sachs' stock lost 97% of its going-public value., less than a year after its public offering.

1932:

But in a time with no SEC, virtually anything went on Wall Street during the Great Depression. Of course, we all know how the story ends. Years later in Washington Mr. Sachs had this to say to Senator Couzens at the Committee of United States Senate Hearing:

Senator Couzens: Did Goldman, Sachs and Company organize the Goldman Sachs Trading Company?

Mr. Sachs: Yes, sir.

Senator: And it sold its stock to the public?

Mr. Sachs: A portion of it. The firm invested originally in 10 percent of the issue.

Senator: And the other 90 percent was sold to the public?

Mr. Sachs: Yes, sir.

Senator: At what price?

Mr. Sachs: At 104...the stock was later split two for one.

Senator: And what is the price of the stock now?

Mr. Sachs: Approximately 1 3/4.

Deja-Vu perhaps?

2008:

Goldman Sachs seems to have a pattern of passing the proverbial buck after they have rinsed all profits from their venture and moved out of the way before the train derails.

(Excerpt:"In Goldman Sachs We Trust: The Story of a $222 Stock going to $1 During the Great Depression," mybudget360.com,8.2009. Image: Profiteer Illustration, Library of Congress, 1929).

Sociopathic Kings, Queens & Lords: Wealth Is Proof Of Goodness...

The Wall Street Journal reported last week that:

"Executives and other highly compensated employees now receive more than one-third of all pay in the US... Highly paid employees received nearly $2.1 trillion of the $6.4 trillion in total US pay in 2007, the latest figures available."

One of the questions often asked when the subject of CEO pay comes up is:

"What could a person such as William McGuire or Lee Raymond (the former CEOs of UnitedHealth and ExxonMobil, respectively) possibly do to justify a $1.7 billion paycheck or a $400 million retirement bonus?"

Why is executive pay so high?

I've examined this with both my psychotherapist hat on and my amateur economist hat on, and only one rational answer presents itself: CEOs in America make as much money as they do because there really is a shortage of people with their skill set. And it's such a serious shortage that some companies have to pay as much as $1 million a day to have somebody successfully do the job. But what part of being a CEO could be so difficult-so impossible for mere mortals-that it would mean that there are only a few hundred individuals in the United States capable of performing it?

In my humble opinion, it's the sociopath part:

CEOs of community-based businesses are typically responsive to their communities and decent people. But the CEOs of most of the world's largest corporations daily make decisions that destroy the lives of many other human beings. Only about 1 to 3 percent of us are sociopaths-people who don't have normal human feelings and can easily go to sleep at night after having done horrific things. And of that 1 percent of sociopaths, there's probably only a fraction of a percent with a college education. And of that tiny fraction, there's an even tinier fraction that understands how business works, particularly within any specific industry. Thus there is such a shortage of people who can run modern monopolistic, destructive corporations that stockholders have to pay millions to get them to work. And being sociopaths, they gladly take the money without any thought to its social consequences.

Today's modern transnational corporate CEOs-who live in a private-jet-and-limousine world entirely apart from the rest of us-are remnants from the times of kings, queens, and lords. They reflect the dysfunctional cultural (and Calvinist/Darwinian) belief that wealth is proof of goodness, and that that goodness then justifies taking more of the wealth.

Democracy in the workplace is known as a union. The most democratic workplaces are the least exploitative, because labor has a power to balance capital and management. And looking around the world, we can clearly see that those cultures that most embrace the largest number of their people in an egalitarian and democratic way (in and out of the workplace) are the ones that have the highest quality of life. Those that are the most despotic, from the workplace to the government, are those with the poorest quality of life.

Over time, balance and democratic oversight will always produce the best results. An "unregulated" marketplace is like an "unregulated" football game -CHAOS. And chaos is a state perfectly exploited by sociopaths, be they serial killers, warlords, or CEOs.

By changing the rules of the game of business so that sociopathic business behavior is no longer rewarded (and, indeed, is punished - as Teddy Roosevelt famously did as the "Trustbuster" and FDR did when he threatened to send "War Profiteers" to jail), we can create a less dysfunctional and more egalitarian society. And that's an important first step back from the thresholds to environmental and economic disaster we're now facing.

-Thom Hartmann ( Exerpt: "Profiling CEOs & Their Sociopathic Paychecks, 7.27.2009. Image: Louis XIII Crowned by Victory (Siege of La Rochelle, 1628), Oil on canvas, 228 x 175 cm, Musée du Louvre, Paris, 1635).

11 Reasons Why Bernard Madoff aka "The Swindler" Is America's Unconscious Superhero

“In today’s regulatory environment, it’s virtually impossible to violate rules.” -Bernard Madoff (2007).

The Inadvertent Hand of Justice:

While it is understandable that the super-rich and wealthy, who have lost a large portion of their retirement and investment funds are unanimous in their condemnation and cries of betrayal of trust, and the editorials of all the prestigious newspapers and weeklies have joined the chorus of moral critics, there is much to praise in Madoff’s deeds, even if such praise was not at the heart of his fraudulent endeavor.

1. The swindle of $50 plus billion dollars may make a big dent on US Zionist funding of illegal Israeli colonial settlements in the Occupied Territories, lessen funding for AIPAC’s purchase of Congressional influence and financing of propaganda campaigns in favor of a pre-emptive US military attack against Iran. Most investors will have to lower or eliminate their purchase of Israel bonds, which subsidize the Jewish State’s military budget.

2. The swindle has further discredited the highly speculative hedge funds already reeling from massive withdrawals because of deep losses. Madoff’s funds were one of the last ‘respected’ operations still drawing new investors, but with the latest revelations it may accelerate their demise. The dismissed promoters may finally have to perform an honest, productive day’s work.

3. Madoff’s long-term, large-scale fraud was not detected by the Securities and Exchange Commission (SEC) despite its claims of at least two investigations. As a result, there is a total loss of credibility. More generally, the SEC’s failure demonstrates the incapacity of capitalist government regulatory agencies to detect mega frauds. This failure raises the question of whether alternatives to investing in Wall Street are better suited to protect savings and pension funds.

4. Madoff’s long-term association with NASDAQ, including his chairmanship, while he was defrauding his clients of billions, strongly suggests that the members and leaders of this stock exchange are incapable of recognizing a crook, and are prone to overlook felonious behavior of ‘one of their own’. In other words, the investing public can no longer look to holders of high posts in NASDAQ as a sign of probity. After Madoff, it may signal time to look for a king-size mattress for safe keeping of what remains of a family’s wealth.

5. The investment advisors from top banks in Europe, Asia and the US managing billions of funds did not carry out the most elementary due diligence of Madoff’s operation. Apart from severe bank losses, tens of thousands of influential, affluent and super-rich lost their entire accumulated wealth. The result is total loss of confidence in the leading banks and financial instruments as well as the general discrediting of ‘expert knowledge’. The result is a weakening of the financial stranglehold over investor behavior and the demise of an important sector of the parasitic ‘rentier’ class, which gains without producing any useful commodities or providing needed services.

6. Since most of the money stolen by Madoff came from the upper classes around the world, his behavior has reduced inequalities – he is the ‘greatest leveler’ since the introduction of the progressive income tax. By ruining billionaires and bankrupting millionaires, Madoff has lessened their capacity to use their wealth to influence politicians in their favor – thus increasing the potential political influence of the less affluent sectors of class society…and inadvertently strengthening democracy against the financial oligarchs.

7. By swindling life-long friends, self-same ethno-religious investors, narrow ethnically defined country club members and close family members, Madoff demonstrates that finance capital shows no respect for any of the pieties of everyday life: Great and small, holy and profane, all are subordinated to the rule of capital.


8. Among the many ruined investors in New York and New England, there are a number of mega slumlords (real estate moguls), sweatshop owners (fancy name-brand clothes and toy manufacturers) and others who barely paid the minimum wage to their women and immigrant laborers, evicted poor tenants and swindled employees out of their pensions before moving their operations to China. In other words, Madoff’s swindle was a kind of secular ‘divine’ retribution for past and present crimes against labor and the poor. Needless to say, this ‘unconscious Robin Hood’ did not redistribute the money fleeced from the employers to their workers, he reinvested part of it in charities which enhanced his philanthropic image and to payout to some of his early investors so sustain the overall Ponzi scam.

9. Madoff struck a severe blow against anti-Semites who claim that there is a ‘close-knit Jewish conspiracy to defraud the Gentiles’, laying that canard to rest once and for all. Among Bernard Madoff’s principle victims were his closest Jewish friends and colleagues, people who shared Seder meals and frequented the same upscale temples in Long Island and Palm Beach.

Bernie was discriminating in accepting clients, but it was on the basis of their wealth and not their national origin, race, religion or sexual preference. He was very ecumenical and a strong backer of globalization. There was nothing ethnocentric about Madoff: He defrauded the Anglo-Chinese bank HSBC of $1 billion dollars and several billions from the Dutch arm of the Belgian bank Fortes. $1.4 billion was from the Royal Bank of Scotland, the French bank BNP Paribas, the Spanish bank, Banco Santander, the Japanese Nomura; not to mention hedge funds in London and the US, which have admitted holdings in Bernard Madoff Investment Securities. Indeed Bernie was emblematic of the modern up-to-date, politically correct, multicultural, international…swindler. The ease with which the super rich of Europe forked their fortunes over caused one Madrid-based business consultant to observe that, “picking off Spain’s wealthiest was like clubbing seals…” (Financial Times, December 18, 2008 p.16)

10. Madoff’s swindle will likely promote greater self-criticism and a more distrustful attitude toward other potential confidence people posing as reliable financial know-it-alls. Among self-critical Jews, they are less likely to confide in brokers simply because they are zealous backers of Israel and generous contributors to Zionist fund drives. That is no longer an adequate guarantee of ethical behavior and a certificate of good conduct. In fact it may raise suspicion of brokers who are excessively ardent boosters of Israel and promise consistent high returns to local Zionist affiliates – asking themselves whether this business about ‘what is good for the …’ is really a cover for another scam.

11. The demise of Madoff’s enterprise and his wealthy liberal Jewish victims will adversely affect contributions to the 52 Major Jewish American Organizations, numerous foundations in Boston, Los Angeles, New York and elsewhere, as well as the Clinton/Schumer militarist wing of the Democratic Party (Madoff bankrolled both of them as well as other unconditional Congressional supporters of Israel). This may open Congress to greater debate on Middle East policy without the usual high volume attacks.

Conclusion:

Madoff’s swindle and fraudulent behavior is not the result of a personal moral failure. It is the product of a systemic imperative and the economic culture, which informs the highest circles of our class structure. The paper economy, hedge funds and all the ‘sophisticated financial instruments’ are all ‘Ponzi schemes’ – they are not based on producing and selling goods and services. They are financial bets on future financial paper growth based on securing future buyers to pay off earlier cash ins.

The ‘failure’ of the SEC is totally predictable and systemic: The regulators are selected from the regulatees, are beholden to them and defer to their judgments, claims and audit sheets. They are structured to ‘miss the signs’ and to avoid ‘over-regulating’ their financial superiors. Madoff operated in a milieu of a Wall Street where everything goes, where impunity for mega-bailouts for mega swindlers is the norm. As an individual swindler, he out-defrauded some of his bigger institutional competitors on the Street. The whole system of rewards and prestige goes to those best able to juggle the books, to cover the paper trails and who have willing victims begging to get fleeced. What a mensch, this Madoff!

In a few days, one individual, Bernard Madoff, has struck a bigger blow against global financial capital, Wall Street and the US Zionist Lobby/Israel-First Agenda than the entire US and European left combined over the past half century! He has been more successful in reducing vast wealth disparities in New York than all the white, black, Christian and Jewish, reform and mainline Democratic and Republican governors and Mayors over the past two centuries.

Some right-wing conspiracy theorists are claiming that Bernie is a secret Islamic-Palestinian agent (from Hamas) who set out to deliberately undermine the financial base of the Jewish State of Israel and its most powerful, affluent and generous US backers and foundations. Others claim that he is a closet Marxist whose swindles were carefully designed to discredit Wall Street and to funnel billions into clandestine radical organizations – after all…does anyone know where the lost billions have gone? Unlike the leftist pundits, bloggers and protest marchers, whose earnest and public activities have had no effect on the rich and powerful, Madoff has aimed his blows where it hurts the most: Their mega-bank accounts, their confidence in the
capitalist system, their self-esteem and, yes, even their cardiac well-being.

Does that mean we on the left should form a Bernie Madoff Defense Committee and call for a bailout in line with Paulson’s bailout of his Citibank cronies? Should we proclaim “Equal bailout for equal swindlers!”? Should we advocate his flight (or his right of return) to Israel to avoid a trial? It might not fly with his many Jewish victims to make the case for an Israeli retirement for Bernie.

There is no reason to mount the barricades for Bernard Madoff. It’s enough to recognize that he has inadvertently rendered an historic service to popular justice by undermining some of the financial props of a class-ridden injustice system.
-James Petras (Excerpt: "Bernard Madoff: Wall Street Swindler Strikes Powerful Blows for Social Justice", Information Clearinghouse, 12.20.2008. Image: -VioletPlanet, The Hero Factory, 2.26.09).

The Spectacularly Inept & Shameless Financial Elites...

Let's imagine, for a moment, how different the public debate would be today if it had been unions that had caused the current economic turmoil. In other words, try to imagine a scenario in which union leaders - not financial managers - were the ones whose reckless behaviour had driven a number of Wall Street firms into bankruptcy and in the process triggered a worldwide recession.

Needless to say, it's hard to imagine a labour leader being appointed to oversee a bailout of unions the way former Goldman Sachs CEO Henry Paulson was put in charge of supervising the $700 billion bailout of his former Wall Street colleagues. My point is simply to note how odd it is that the financial community has emerged so unscathed, despite its central role in the collapse that has brought havoc to the world economy.

Of course, not all members of the financial community were involved in Wall Street's wildly irresponsible practices of bundling mortgages into securities and trading credit default swaps. But the financial community as a whole, on both sides of the border, certainly pushed hard to put in place an agenda of small government, in which financial markets largely regulated themselves and citizens (particularly high-income investors) would be spared the burden of paying much tax.

The agenda advanced much further in the U.S., but had an impact in Canada, particularly on the tax front.
One would think that those who pushed this agenda so enthusiastically would, at the very least, be a tad embarrassed today. But so influential are those in the financial elite - and their hangers-on in think-tanks and economics departments - that they continue to appear on our TV screens, confidently providing us with economic advice, as if they'd played no role whatsoever in shaping our economic system for the past quarter century.

Of course, we're told there's been a major change in their thinking, in that many of them are now willing to accept large deficits in today's federal budget, in the name of stimulating the economy. While this does seem like a sharp departure from the deficit hysteria of the 1990s, a closer look reveals the change may not be that significant.

In fact, financial types have always accepted deficits - when they liked the cause. Hence their lack of protest over George W. Bush's enormous deficits, which were caused by his large tax cuts for the rich and his extravagant foreign wars. What they don't like is governments going into deficit to help ordinary citizens - either by creating jobs or providing much unemployment relief.

So the Canadian financial community has been urging that the stimulus package consist mostly of income tax cuts - even though direct government spending would provide much more stimulus and do more to help the neediest. If the Harper government follows the financial community's advice, we will simply move further along with the small government revolution launched by Ronald Reagan in the early 1980s.

Of course, tax cuts are not the same as financial deregulation. But they are twin prongs of a bundled package aimed at reducing the power of government to operate in the public interest.

Surely it's time to rethink this resistance to government acting as an agent of the common good. And maybe it's time for a little humility on the part of a financial elite that long has enjoyed such deference while turning out to be so spectacularly inept.

- Linda McQuaig ("Financial Elite Have No Shame), The Toronto Star, 1.27.2009. Image: Title Card, B-Movie, "Scum Of The Earth," 1963).

The United Bank of America: A Call To Civil Service...

“Democracy is the road to Socialism.” -Karl Marx

"In what now looks like the final phase of the credit crunch, one thing has become clear: Many of the world's major banks will end up in state control.

Britain is furthest down the track. This week, Royal Bank of Scotland Group Plc and HBOS Plc ceded majority control to the government in exchange for financial support. Already, the state is making demands. It will have the right to seats on the board, to fix dividends, and be allowed to set executive pay.

Other countries are likely to follow. Germany has put its own rescue package in place, and Chancellor Angela Merkel has said the way bankers pay themselves will have to change. Even U.S. Treasury Secretary Henry Paulson has promised the government will take a direct stake in banks such as Citigroup Inc. and Goldman Sachs Group Inc.

In effect, bankers are about to become civil servants. That will require a huge culture change. In a second, banking will have to switch from being a raucous, entrepreneurial and aggressive industry into a dull, safe and conservative one.

For that to happen, their brains will have to be completely rewired. Everything a generation of bankers grew up expecting will be forgotten. A new set of rules is being written.

The initial moves will be cosmetic. Out will go the round- the-clock, work-hard-play-hard culture. In its place will come the nine-to-five day with a break for tea and biscuits. Meetings will be sacrosanct, and the keeping of minutes precise. The gender-awareness officer will no longer be a figure of fun, but rather the most powerful person in the workplace. As for taking clients to lap-dancing clubs, don't even think about it.

It's a new world, get used to it.

-Matthew Lynn (Excerpt: "Bankers Find Their New Calling as Civil Servants," Bloomberg News, 10.15.08. Image: - Deathagony1917,DeviantArt.com,2008).

Mafia-Capitalism: Humanity As Commodity...

"What is the interest for my family?"
-Marlon Brando as Don Corleone (The Godfather, 1972).

"It is no longer our economy but our democracy that is in peril. It was the economic meltdown of Yugoslavia that gave us Slobodan Milosevic. It was the collapse of the Weimar Republic that vomited up Adolf Hitler. And it was the breakdown in czarist Russia that opened the door for Vladimir Lenin and the Bolsheviks. Financial collapses lead to political extremism. The rage bubbling up from our impoverished and disenfranchised working class, glimpsed at John McCain rallies, presages a looming and dangerous right-wing backlash.

As the public begins to grasp the depth of the betrayal and abuse by our ruling class, as the Democratic and Republican parties are exposed as craven tools of our corporate state, as savings accounts, college funds and retirement plans become worthless, as unemployment skyrockets and as home values go up in smoke we must prepare for the political resurgence of a reinvigorated radical Christian right. The engine of this mass movement-as is true for all radical movements-is personal and economic despair. And despair, in an age of increasing shortages, poverty and hopelessness, will be one of our few surplus commodities.

Karl Polanyi in his book "The Great Transformation," written in 1944, laid out the devastating consequences-the depressions, wars and totalitarianism-that grow out of a so-called self-regulated free market. He grasped that "fascism, like socialism, was rooted in a market society that refused to function."

He warned that a financial system always devolved, without heavy government control, into a Mafia capitalism-and a Mafia political system-which is a good description of the American government under George W. Bush. Polanyi wrote that a self-regulating market, the kind bequeathed to us since Ronald Reagan, turned human beings and the natural environment into commodities, a situation that ensures the destruction of both society and the natural environment. He decried the free market's belief that nature and human beings are objects whose worth is determined by the market. He reminded us that a society that no longer recognizes that nature and human life have a sacred dimension, an intrinsic worth beyond monetary value, ultimately commits collective suicide. Such societies cannibalize themselves until they die. Speculative excesses and growing inequality always destroy the foundation for a continued prosperity.

The corporate con artists and criminals who have hijacked our state and rigged our financial system still speak to us in the obscure and incomprehensible language coined by specialists at elite business schools. They use terms like securitization, deleveraging, structured investment vehicles and credit default swaps. The reality, once you throw out their obnoxious jargon, is not hard to grasp. Banks lent too much money to people and financial institutions that could not pay it back. These banks are now going broke.

The government is frantically giving taxpayer dollars to banks so they can be solvent and again lend money. It is not working. Bank lending remains frozen. There are ominous signs that the government may not be able to hand over enough of our money because the losses incurred by these speculators are too massive. The downward spiral could spread like a tidal wave across the country, especially since our corporate elite, including Barack Obama, seem to have no real intention of bailing out families who can no longer pay their mortgages or credit card debts.

Lenin said that the best way to destroy the capitalist system was to debauch its currency. If our financial disaster continues there will be a widespread loss of faith in the mechanisms that regulate society. If our money becomes worthless, so does our government. All traditional standards and beliefs are shattered in a severe economic crisis. The moral order is turned upside down. The honest and industrious are wiped out while the gangsters, profiteers and speculators amass millions. Look at Lehman Brothers CEO Richard Fuld. He walks away from his bankrupt investment house after pocketing $485 million. His investors are wiped out. An economic collapse does not only mean the degradation of trade and commerce, food shortages, bankruptcies and unemployment; it means the systematic dynamiting of the foundations of a society.

The Patriot Act, the FISA Reform Act, the suspension of habeas corpus, the open use of torture in our offshore penal colonies, the stationing of a combat brigade on American soil, the seas of surveillance cameras, the brutal assaults against activists in Denver and St. Paul are converging to determine our future. Those dark forces arrayed against American democracy are waiting for a moment to strike, a national crisis that will allow them in the name of national security and moral renewal to shred the Constitution. They have the tools. They will use fear, chaos, the hatred for the ruling elites and the specter of left-wing dissent and terrorism to impose draconian controls to extinguish our democracy. And while they do it they will be waving the American flag, singing patriotic slogans and clutching the Christian cross.

This is a defining moment in American history. The next few weeks and months will see us stabilize and weather this crisis or descend into a terrifying dystopia. I place no hope in Obama or the Democratic Party. The Democratic Party is a pathetic example of liberal, bourgeois impotence, hypocrisy and complacency. It has been bought off. I would like to offer hope, but it is more important to be a realist. No ethic or act of resistance is worth anything if it is not based on the real. And the real, I am afraid, does not look good.

-Chris Hedges (Excerpt: "America’s Political Cannibalism," TruthDig.com, 10.13.08. Image: Scene from "Mafioso," directed by Alberto Lattuada, Italy, 1962).

On Wall Street: Let Them Hit Bottom, Let Them Go Bankrupt...

Legendary investor Jim Rogers warned during a CNBC interview this morning that global central banks are creating the environment for an inflationary holocaust by their ceaseless overprinting of currency, a measure that isn’t even successful in stabilizing the stock market.

Rogers said that the only solution to the market crisis was to let failing banks and speculators go bankrupt and stop pumping endless amounts of liquidity into the system, labeling it outrageous that responsible investors and taxpayers are being made to bail out crooks on Wall Street. “The way to solve this problem is to let people go bankrupt,” Rogers stressed, “All of this pumping money into the system is not going to save it - see what the market is saying, it’s saying we don’t buy that, let people go bankrupt...then you hit bottom and then you start over. The people who are sound will take over the assets from the people who aren’t sound and we'll start over. This is the way the world has worked for a few thousand years,” said Rogers.

Rogers warned that the reliance on governments printing money would not aid a recovery and would only lead to the problem becoming worse in the future. “We’re setting the stage for when we come out of this of a massive inflation holocaust,” he said.

Rogers said that excesses of credit and people becoming over-leveraged meant that they would now have to take some pain: “Never before in world history were people able to buy houses with no money down, many people bought four or five houses with no money down and no job and then they did it with cars and student loans and credit card loans, you just think we say well that’s too bad we’re gonna start over nobody loses his job….be realistic."

Rogers said that the G7 leaders, who are meeting this weekend, should “go down to the bar, have a beer and leave the rest of us alone, let the people who are sound succeed and let the other people fail. What I’m afraid of is they’re gonna keep doing what they’ve been doing - which the market hates, you can see the market hates it - because this is going to unleash rampant inflation around the world, rampant confusion in the currency markets and you’re gonna have currencies gyrating all over the world,” said Rogers, repeating that the central bankers were unleashing an “inflationary holocaust”.

A CNBC expert then expressed his confusion at Rogers’ argument that overprinting of currency caused hyper inflation, seemingly displaying less grasp of basic economic cause and effect principles than a 5-year-old would. Rogers again made the point: “When you print gigantic amounts of money and you flood the world with money, throughout history that has led to inflation.”

-Paul Joseph Watson, ("Rogers: Global Bankers Have Unleashed Inflationary Holocaust," PrisonPlanet.com, 10.10.08. Image: "Worthless," BillStClair.com, 2008).

Bailed Out: Financial Wise Guys & The Wall Street Casino...

"The Congress told the American people to go to hell."-Lou Dobbs, on the passage of the 700 billion dollar Wall Street bailout plan, 10.1.08.

PART I: REPEALING ROOSEVELT

"The federal reserve is still struggling to contain what is already the most severe credit contraction since the Great Depression. Yet in all of the press coverage, commentators have scarcely acknowledged that this old-fashioned panic is a child of deregulation. During the past decade, the financial economy has repeated the excesses of the 1920s -- too much borrowing to underwrite too many speculative bets with other people's money, too far beyond the reach of regulators, setting up the entire economy for a crash.

The Roosevelt schema of financial regulation was built around two principles -- disclosure and outright prohibition of inherent conflicts of interest. All publicly listed and traded companies were required to disclose to the Securities and Exchange Commission and to the public all financial information deemed "material" to investor decisions. The New Deal also prohibited stock trading based on insider information, and it created structural barriers against the kinds of temptations that ruined the economy in the 1920s. The most notable of these was the 1933 Glass-Steagall Act, which prohibited the same financial company from being both a commercial bank and an investment bank.

The Glass-Steagall wall was devised to prevent a repeat of the 1920s' scams, in which banks made speculative investments, turned the debts into securities, and sold them off to unsuspecting investors with the blessing of the bank. With Glass-Steagall, commercial banks were tightly supervised and given access to federal deposit insurance, to keep savings secure and prevent runs on banks. Investment banks, meanwhile, were not government-guaranteed and were free to do more speculative transactions for consenting adult customers. But Roosevelt's newly created SEC subjected securities markets to much tighter structures against self-dealing and insider conflicts of interest.

The New Deal also acted on the home mortgage front. Millions of people were losing their homes and farms to foreclosures, both creating human tragedies and deepening the Depression. In response, the Roosevelt administration literally invented the modern system of home finance. Pre–New Deal mortgages had typically been short-term notes, where most of the principal was due and payable at the end of a brief term, often just three to five years. The New Deal devised the modern long-term, fixed-rate, self-amortizing mortgage. Congress created the Federal Housing Administration to insure these mortgages and win their acceptance among lenders. It also created the Federal National Mortgage Association to sell bonds and buy mortgages, and thus replenish the funds of local lenders. And the New Deal devised a system of federal home loan banks to supervise and advance capital to savings and loan institutions. Deposit insurance was extended to government-supervised mortgage lenders.

The system worked like a watch, combining sound lending standards with expanded opportunity. The rate of home ownership rose from 44 percent in the late 1930s to 64 percent by the mid-1960s. Savings and loan associations almost always ran in the black, there were no serious scandals, and the government deposit-insurance funds regularly returned a profit.

If you fast forward to 2000, much of this protective apparatus has been repealed. Regulators who didn't believe in regulation and a compliant Congress have allowed financial engineers to evade what remains. In the 1980s, regulators began allowing exceptions to Glass-Steagall. In 1999, Congress finally repealed it outright, permitting financial supermarkets like Citigroup to operate ANY KIND OF FINANCIAL BUSINESS THEY DESIRED, and profit from multiple conflicts of interest. The scandals that pumped up the dot-com bubble of the late 1990s, as well as the most flagrant cases like Enron, and the crash that followed, were the result of the SEC and the bank regulators CEASING TO POLICE CONFLICTS OF INTEREST. In the scandals of the 1990s, corporate CEOs, their accountants, and stock analysts working for their bankers, all conspired to puff up corporate balance sheets and pump up stock prices on which executive bonuses depended. This is a little harder today, thanks to the honest accounting requirements of the 2002 Sarbanes-Oxley Act (which the Bush administration hopes to water down). But the same kinds of conflicts and potentials for abuse exist when a mega-bank underwrites a leveraged buyout by an affiliated hedge fund, and then hypes the sale of securities when the fund is ready to sell the company back to the public.

Meanwhile, the once staid and socially directed system of providing home mortgages was seized by financial wise guys and turned into another casino. In the early 1980s, exploiting the Reaganite theme of government-bashing, the savings and loan industry persuaded Congress to substantially deregulate S&Ls -- which then speculated with government-insured money and lost many hundreds of billions, costing taxpayers upward of $350 billion in less than a decade.

In 1989 when Congress reregulated S&Ls, the financial engineers just did another end run. Mortgage companies that were exempt from federal regulation came to dominate the mortgage lending business. This loop of the story begins in 1968 with the privatization of Roosevelt's Federal National Mortgage Association. In the wake of that move, investment bankers invented a daisy chain known as "securitization" of mortgage credit. Through securitization, a mortgage broker could originate a loan, sell it to a mortgage banker, who would then sell it to an investment bank like Salomon Brothers, who in turn would package the mortgages into securities. These were then evaluated and coded (for a fee) by private bond-rating agencies according to their supposed risk, and sold off to hedge funds or pension funds. Each of these worthies took their little cut, raising the cost of credit to the borrower. Rather than diffusing risks, securitization concentrated them, because everyone was making the same bet on real-estate inflation.

In the sub-prime sector, you could get a loan without a full credit check, or even without income verification. The initial "teaser" rate would be low, but after a few years the monthly payment would rise to unaffordable levels. Both borrower and lender were betting on rising real-estate prices to bail them out, by allowing an early refinancing. But when a soft housing market dashed those hopes, the whole sub-prime sector crashed, and the damage spilled over into other financial sectors.

How aggressively the Fed should move has been the subject of extensive commentary. If the Fed moves too slowly or doesn't cut enough, it ends up playing catch-up behind an advancing panic. If it moves too quickly or too generously, it just invites the next round of speculation with cheap money, and in passing might erode confidence in the none-too-robust dollar. But all of this commentary misses the larger point: If monetary policy is the only tool the government has at its disposal, the Fed can't possibly solve the larger crisis (or prevent the next one) by using interest rates alone.

Indeed, until Congress dismantled financial regulation, the Fed was not called upon to mount these heroic rescues, which have become so common in recent years. Until the 1960s, the central bank could keep interest rates low, confident that they would underwrite the growth of the real economy rather than risky financial speculation, for the simple reason that entire categories of speculation did not exist.

But during the past quarter-century, as deregulation has turned the economy into a casino, the Federal Reserve has had to mount major rescues at least six times. In the early 1980s, it bailed out the big New York banks, some of which lost more than the total amount of their capital in failed speculative third world loans; the money-center banks would have been adjudged insolvent if the Fed hadn't bent its usual capital-adequacy rules. Next, the Fed poured huge quantities of liquidity into financial markets after the stock market crash of 1987, in which the market lost more than 20 percent of its value in a single day. The Fed intervened again on several occasions after speculators destabilized several third world currencies and economies from Mexico to Malaysia. The Fed cleaned up after the aforementioned Long Term Capital Management collapse. It flooded markets with money after the dot-com crash and the attacks of September 11, and most recently in the credit crunch of summer 2007.

Indeed, markets have become so reliant on the Fed's bailouts that they even have a term for it -- "the Greenspan put." A put is a financial term meaning a right to sell a financial security at a predetermined price. The knowledge that the Fed would cheapen money in a crisis reassured speculators that they could always unload their paper. That awareness also influenced financial insiders to behave more recklessly."

PART II: WHOSE TO BLAME?

"There's plenty of blame to go around, and it doesn't fasten only on one party or even mainly on what Washington did or didn't do. As The Economist magazine noted recently, the problem is one of "layered irresponsibility ... with hard-working homeowners and billionaire villains each playing a role." Here's a partial list of those alleged to be at fault:

• The Federal Reserve, which slashed interest rates after the dot-com bubble burst, making credit cheap.
• Home buyers, who took advantage of easy credit to bid up the prices of homes excessively.
• Congress, which continues to support a mortgage tax deduction that gives consumers a tax incentive to buy more expensive houses.
• Real estate agents, most of whom work for the sellers rather than the buyers and who earned higher commissions from selling more expensive homes.
• The Clinton administration, which pushed for less stringent credit and downpayment requirements for working- and middle-class families.
• Mortgage brokers, who offered less-credit-worthy home buyers subprime, adjustable rate loans with low initial payments, but exploding interest rates.
• Former Federal Reserve chairman Alan Greenspan, who in 2004, near the peak of the housing bubble, encouraged Americans to take out adjustable rate mortgages.
• Wall Street firms, who paid too little attention to the quality of the risky loans that they bundled into Mortgage Backed Securities (MBS), and issued bonds using those securities as collateral.
• The Bush administration, which failed to provide needed government oversight of the increasingly dicey mortgage-backed securities market.
• An obscure accounting rule called mark-to-market, which can have the paradoxical result of making assets be worth less on paper than they are in reality during times of panic.
• Collective delusion, or a belief on the part of all parties that home prices would keep rising forever, no matter how high or how fast they had already gone up.

The U.S. economy is enormously complicated. Screwing it up takes a great deal of cooperation."

-Robert Kuttner, PART I: "The Bubble Economy," The American Prospect, 9.24.07 , Part II: –Joe Miller & Brooks Jackson "Who Caused the Economic Crisis?" Factcheck.org, 10.1.08. Image: -John Wardell, "Roulette Wheel," Flickr 1.1.06).