The Dismantling of America

There is a gangster-like irrationality to our country's version of democracy. When Hank Paulson came a-begging, bowing to Nancy Pelosi on bended knee, our Congress, in its slavish devotion to the rich failed to extract even the most basic guarantees for us, the unwashed and lowly ... you know ... the ones who are footing the bill.

Where the Brits insisted that any bailout earn them voting rights with seats on their bankers' boards, a 12 percent annual dividend paid to the government, a suspension of dividend payments to shareholders, restrictions on executive bonuses, and a legal requirement that the banks lend money to homeowners and small businesses, we American nitwits won the right to get stiffed.

If we are to believe our servile Congress, we taxpayers deserve no controlling interest in return for those 700 billions of dollars, no votes nor seats on the board, and a mere five percent in dividend payouts even as Wall St. shareholders continue to make billions and its executives don their golden parachutes while pocketing end of year bonuses for having frittered away staggering amounts of money.

Congress' spineless sell-out was so disturbing even Bloomberg News is asking the courts to force the Federal Reserve to disclose the securities the central bank is accepting on behalf of American taxpayers as collateral for $1.5 trillion of loans to banks.

As Bloomberg rightly points out:``The American taxpayer is entitled to know the risks, costs and methodology associated with the unprecedented government bailout of the U.S. financial industry,''

The Great American Swindle: Private profits and Socialized losses

If President Obama is serious about reforming the way America does business he would be advised to learn from our friends up North.

In Canada for a commercial bank to acquire an investment dealer-- like say Goldman Sachs-- it must adhere to strict regulations. Naturally their banks howled about "losing competitiveness" until the crisis hit and those sensible government policies kept them solvent. You see for Canadians the notion of democracy is not to screw one's neighbor out of house and home, but to form a more perfect union. Radical notion that-- too bad it's not in our own Constitution... oh wait...

The idea that America's "union" was in part conceived specifically to "promote the general welfare" has been discarded since the "Reagan Revolution". Instead, it has become an article of faith that government policies such as a progressive tax rate are somehow anti-democratic. As a result, even as unmanaged speculation threatens to sink our entire economy, Paulson and his Wall Street cronies are determined to drain the nation's coffers to feed the private sector's addictive habit.

A Quiet Windfall For U.S. Banks
With Attention on Bailout Debate, Treasury Made Change to Tax Policy
By Amit R. Paley
Washington Post Staff Writer
Monday, November 10, 2008; Page A01

The financial world was fixated on Capitol Hill as Congress battled over the Bush administration's request for a $700 billion bailout of the banking industry. In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention.

But corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion.
The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days, as they remained consumed with the controversial bailout bill.



As Naomi Klein observes in the upcoming edition of The RollingStone: The Wall Street bailout looks a lot like Iraq — a "free-fraud zone" where private contractors cash in on the mess they helped create.

There are over 10 weeks left before the Obama inauguration. If it is not yet clear that the neocons intend to effectively cripple the next administration consider this: On the same day that he allocated the first $125 billion to the banks, Secretary Paulson hinted -- not that the markets required greater regulation but that the crisis demanded "greater fiscal responsibility and entitlement reform". In other words good-bye, Medicare and Social Security. If the Wall St. wizards stole your pension, shipped your job to Brisbane and left you in debt with a case of ulcers-- maybe you can head South and join up with the 'wise guys'.



NYSE Chairman Richard Grasso Embracing A FARC Commander

Like the hockey-mom said--this is the Real America, Now, Aren't you glad-- it ain't Canada!

Fooling US Twice

Europe's neocons are abandoning the laissez-faire ship. From Spiegel Int: In a speech before the European Parliament on Tuesday, French President Nicolas Sarkozy suggested that European countries establish their own sovereign wealth funds to take ownership stakes in key industries.

"I don't want European citizens to wake up in a few months and discover that European businesses are now owned in capitals outside of Europe."

Sarkozy's use of the term "sovereign wealth funds" was deliberate. Most sovereign wealth funds are controlled by petrocash rich nations, like Russia and the Gulf states, and there are concerns they could go on a shopping spree and snap up Europe's tradition-steeped companies.

There is something to be said for tradition. While credit for steering the financial markets away from the Paulson poison pill has largely gone to the U.K.'s Gordon Brown, it was the Germans led by Angela Merkel who were able to move quickly and stem the debacle. You see the Germans remember what the pirate House of Morgan and his cabal of international thieves did to them in 1931 and unlike US they weren't about to be fooled again.

[the Canadian philosopher John Ralston Saul writes that "the first three aims of the corporatist movement in Germany, Italy and France during the 1920s, those that went on to become part of the Fascist experience, were “to shift power directly to economic and social interest groups, to push entrepreneurial initiative in areas normally reserved for public bodies” and to “obliterate the boundaries between public and private interest.”]

The Germans remember the economic disaster that fomented the fury leading to WWII. For them "nationalization" is not a dirty word. It's about looking out for "your own":
As private banks falter under the financial crisis, state-owned Sparkasse savings banks are enjoying a flood of new business as Germans deposit their money in the institutions based on a traditional bank model.According to a survey conducted by the mass-market daily deposits at Germany's 443 savings banks have increased by more than 1 billion euros ($1.4 billion) in the past two weeks. The country's largest Sparkasse, Hamburg's Haspa, has reported new deposits totaling more than 500 million euros. Cologne's savings bank is also enjoying a sharp rise with 355 million euros in new deposits, reported on Friday, Oct. 10. --Deutsche-Welle

The German/English move forced Wall Street's hand-- "socialize US banks" or see depositors rush to invest in an array of Europe's government guaranteed banks. So much for the market's ability to "self-regulate".

What this current financial crisis should make transparently clear is that commercial contracts depend first and foremost on the contracts we commit to as a society. And yet, one senses that in this country that simple reality continues to be resisted. That every American did not fall down laughing when John McCain suggested that by offering tax-cuts to working people Barack Obama was practicing "socialism" only demonstrates how brainwashed we have become to believe that the rich produce wealth independently.

Fortunately there are still a few sane heads who have a grasp on monetary policy. The Paulson plan was justly criticized by those, like former Treasury secretary, Paul O’Neill who simply called it ‘crazy.’ But their voices were largely drowned out by the market fundamentalists like Thomas Friedman and Phil Gramm, the neo-cons' true believers. It seems Americans are a very dogged lot once an idea has been drilled inside our heads, no matter how outlandish.

Eighty years ago this is what H. L. Mencken had to say about the attitude of the jury in the famous Scopes Trial: "the Fundamentalist mind, running in a single rut for fifty years, is now quite unable to comprehend dissent from its basic superstitions"

That is the intellectual rut that our financial leaders have left us to wallow in after thirty years of Reaganomics. As Andrew Lahde, the Santa Monica, Calif., hedge fund manager who made an 870 percent gain last year by betting on the subprime mortgage collapse, writes in his farewell letter to his investors: "Those who run our investment houses, banks and government-- the low-hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking,” he said of our oligarchic class.

“These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.”

The End of the Trickle Down Era is not going to be pretty. As Chris Hedges reports in "The Idiots Who Rule America" after compelling the working class (by stifling wages) to borrow beyond their means, Washington's laissez-faire policy has left government largely impotent-- Which means everyone loses. Now real wages have dropped, the national treasury has been drained for speculative commercial interests, while consumption, the reliably profligate engine of our economy, is withering. September retail sales are tumbling, 160,000 jobs were lost last month, adding to the three-quarters of a million lost just this year.

In short-- the pain is just beginning. But we'll be damned as "Anti-American" if we dare whisper the words: "democratic socialism." Better to pretend the Great Depression never happened.

Beggared by Greed

"The powers of financial capitalism have a far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole"
--Carroll Quigly

Even as the workers of the world howl in fearful protest, the disaster capitalists are bent on the trifecta: the centralization of market finance, the disruption of state-based economies and the hobbling of freely-elected governments.

The collapse of the Soviet regime was supposed to usher in a less "ideological", more "pragmatic," (read "less welfare-oriented and more "market-oriented.") era in which democracy and trade would flourish. Instead neo-liberalism has hamstrung nation states by reducing their ability to function. Laissez-faire capitalism has actually mitigated against market rationality.

Is it truly a coincidence that upon voting on unreliable electronic machines for the very first time France elects a Hungarian neocon named Sarkozy? Whether he won the presidency fairly or not, his latest gambit proves he is a global-corporatist through and through.

From the Times: France heaped pressure on Gordon Brown last night by floating an ambitious plan for a €300 billion (£237 billion) bailout fund to rescue crippled banks across Europe.
...
Mr Sarkozy is seeking Mr Brown’s support before an emergency summit, scheduled tentatively for Saturday, with Silvio Berlusconi, the Italian Prime Minister, and Angela Merkel, the German Chancellor. His proposal was greeted with scepticism in Britain and outright hostility in Germany. It appears to involve the creation of a Europe-wide emergency fund that would be used to prop up banks when national governments are unable to intervene.

Ms Merkel said that Germany could not and would not issue a blank cheque for all banks, “regardless of whether they behave in a responsible manner or not”.

One wonders just who would be in the clown suit running that show? Hank Paulson? The IMF?

We know how the good old USA got tricked into this mess. With the ironic indifference that typifies our rules-averse Republicans, the legislation that provided Wall Street its unbridled license to steal was named: "the Legal Certainty for Bank Products Act of 2000." It was John McCain's pick for Treasury Secretary, Phil "no more whining" Gramm who got it snuck in without hearings. And a lovely gift it was right before Christmas. Finally our noble financiers could legally fleece the public.

Under the heading of Title III, it ensured the "Legal Certainty for Swap Agreements," which successfully divorced the granters of subprime mortgage loans from any obligation to ever collect on them. Amazingly, the law went so far as to prohibit regulation of these new instruments that were being permitted after the financial industry mergers: "No provision of the Commodity Exchange Act shall apply to, and the Commodity Futures Trading Commission shall not exercise regulatory authority with respect to, an identified banking product which had not been commonly offered, entered into, or provided in the United States by any bank on or before December 5, 2000."

Fast forward to five years later and Carl Levin's Senate subcommittee on investigations uncovers that UBS, a bank that subsequently hired Mr. Gramm as its vice-president, had set up offshore accounts to help American citizens hide at least $18 billion from the IRS. It is instructive to note, that while Gramm remains a viable choice as Secretary of the US Treasury, his appointment was far from well-received by the Europeans.

UBS and Enron: Letter to UBS (17.03.03)
Marcel Ospel
UBS
Bahnhofstrasse 45
CH-8001 Zurich, Switzerland


Dear Mr Ospel,

We are troubled by the recent appointment of former U.S. senator Phil Gramm as a Vice Chairman of UBS. Mr. Gramm’s professional and personal connections to Enron have disgraced his reputation. We believe that UBS’s association with Gramm seriously undermines your company’s professed commitment to corporate responsibility. At a time when investors and the general public need reassurance that our financial institutions are scrupulous, we ask UBS to place Mr. Gramm on leave until all criminal and civil investigations into Enron’s wrongdoing are complete.

During his tenure in Congress and as a member of the Senate Banking Committee, Senator Gramm was the most vocal advocate for Enron, pushing legislation that removed government regulatory authority over the company and exposing it to negligence and fraud:

Sincerely,
Andreas Missbach, Erklärung von Bern
Public Citizen, Citizen Works, Transparency Switzerland, Greenpeace Schweiz, Stiftung für Konsumentenschutz, Schweizerisches Arbeiterhilfswerk SAH, Aktion Finanzplatz Schweiz, Solifonds (read the rest of the letter here)

So there you have it. A former US senator agrees to beggar his fellow citizens then scuttles off to his backers in Europe where he arranges for his cronies to hide their ill-gotten loot. And now, because Bush and the Republicans convinced half of the country we could have war and butter and still cut taxes we're all in hock up to our eyeballs and if we don't pay up our jobs will be lost and our dollars made junk.

Watching these bozos on FOX ridicule common sense one comes away wishing there were laws against greed and smug stupidity. From 2006!

Gutting America

The American public is being challenged to rebel. Make no mistake, this $700 billion "bail-out" package will spell the end of our representative government. Understand-- the world knows that these mortgage assets Paulson proposes to repurchase are overvalued and the U.S. is headed for a major recession. So what is all that "cash for trash" supposed to pay for and where will it come from?-- simple-- China, who the global financiers are helping to buy the United States of America.

The de facto nationalization of the financial heavyweights will anchor the US and global financial market, analysts agreed. "It is good news for Chinese holders of mortgage-backed debt in the two companies," said Dong Yuping, an economist with the institute of finance and banking at the Chinese Academy of Social Sciences. "If the US government hadn't extended a helping hand, their insolvency would have brought serious losses to Chinese holders."

The deal was also done to prevent the government-sponsored companies from being declared insolvent, so it clearly benefits bond holders, said Stephen Green, a senior economist at Standard Chartered Bank in Shanghai.

The two companies account for $5 trillion worth of mortgages in the US - about 40 percent of its national total. Some $1.5 trillion of the debt is held by foreign investors.

"Since the US government intervened, the risks for Chinese holders have become fairly marginal," She Minhua, a Shanghai-based economist, said.

But the government bailout will not improve the US housing market's fundamentals.

Here is what a serious adjustment would entail:
Whenever there is a systemic banking crisis there is a need to recapitalize the banking/financial system to avoid an excessive and destructive credit contraction. But purchasing toxic/illiquid assets of the financial system is not the most effective and efficient way to recapitalize the banking system. Such recapitalization – via the use of public resources – can occur in a number of alternative ways: purchase of bad assets/loans; government injection of preferred shares; government injection of common shares; government purchase of subordinated debt; government issuance of government bonds to be placed on the banks’ balance sheet; government injection of cash; government credit lines extended to the banks; government assumption of government liabilities.

Instead, besides being unable to rebuild our decaying infrastructure or invest in alternative energy, the American taxpayer will be servicing debts held by foreign banks. Faced with corresponding losses most foreign banks are choosing to nationalize while keeping the onus for repayment on the banking industry.

"All UK banks with less than 65 percent of loans funded by deposits have now been nationalized or sold," Alex Potter, banks analyst at Collins Stewart, said.

While the public takeover puts even more risky assets on to the government's books only seven months after the nationalization of Northern Rock bank, Darling said the risk would be borne by the banking industry through a compensation scheme.

But while sensible countries look to shield their taxpayers what Paulson and Congress are proposing amounts to wholesale theft. For once I can say kudos to the NYTimes for exposing the rats:

"Even as policy makers worked on details of a $700 billion bailout of the financial industry, Wall Street began looking for ways to profit from it.

"Financial firms were lobbying to have all manner of troubled investments covered, not just those related to mortgages.

"At the same time, investment firms were jockeying to oversee all the assets that Treasury plans to take off the books of financial institutions, a role that could earn them hundreds of millions of dollars a year in fees.

"Nobody wants to be left out of Treasury's proposal to buy up bad assets of financial institutions."

Mr. Paulson can choose to buy from any financial institution that does business in the United States, or from pension funds, with wide discretion over what he will buy and how much he will pay. Under most circumstances, banks owned by foreign governments are not eligible for the money, but under some conditions, the secretary can choose to bail out foreign central banks.

Under the bill, the Treasury is to buy the securities at prices he deems appropriate. Mr. Paulson may set prices through auctions but is not required to do so.

Rarely if ever has one man had such broad authority to spend government money as he sees fit, with no rules requiring him to seek out the lowest possible price for assets being purchased.

That any legally elected Congress would sit still for such a blatant power-grab supports my suspicion that the vote-rigging that was exposed by the Bush coup of 2000 is an open bipartisan affair. The culture war with its steady nurturing of the nation's historical tendencies towards ethnic bigotry and religious zealotry and exacerbated by a phony red state/blue state divide has been the corporate smoke-screen for the slow, tactical destruction of our democracy.

Remember how this all started. It was the Dodd/Shelby bail-out plan that first allowed borrowers to not only receive rates the market wouldn't approve them for, but it would even artificially reduce their loan amounts. It also bought billions of bad loans that banks wanted to offload.

Those following the progress of the Dodd-Shelby mortgage rescue plan in the Senate might want to check out two solid pieces of enterprising reporting on the bill this weekend.

First, the Examiner's Tim Carney reports that the bailout section of the Dodd-Shelby bill is, in the words a lobbyist, "exactly what Bank of America and Countrywide wanted."

Is there a connection between Bank of America and Sen. Christopher J. Dodd (D-Conn.)? There is. Carney: "Bank of America's political action committee (PAC) has donated $20,000 to Dodd since he became chairman of the banking panel 17 months ago. From January 2007 to March 2008, Bank of America employees have donated at least $50,400 to Dodd's campaigns, according to the Center for Responsive Politics."

National Review's the Corner follows up, citing an internal Bank of America document:

"National Review Online has obtained an internal Bank of America "discussion document" (PDF here) on the subject of the FHA Housing Stabilization and Homeownership Retention Act of 2008, a.k.a. the Dodd-Shelby mortgage-lender bailout bill .... This discussion document (dated March 11, 2008) would appear to support the contention that BofA essentially wrote the bailout section of the bill."

Then there are these murky questions surrounding Chris Dodd and congressional corruption:

Lobbyists for the Texas Indian tribe that shelled out $4.2 million three years ago in a failed bid to get Congress to reopen a closed casino told the tribe that U.S. Sen. Christopher J. Dodd had been "greased" to get his help, its longtime consultant confirmed last week.

Dodd denies there was any quid pro quo yet two Democrats, Brian Lunde and George Burger paid $10,000 to a lobbyist linked to the senator, Lottie Shackelford, to secure the senator's support for the single-sentence rider that would have unshuttered the casino closed by Texas authorities.

Also, Federal Election Commission records show that Shackelford, now vice chairwoman of the Democratic National Committee, contributed $1,000 to Dodd in June 2002, four months before the passage of the notorious Help America Vote Act which allowed for non-certifiable electronic voting machines to be used in US elections.

Dodd, in his statement at the Indian Affairs Committee hearing, acknowledged that Shackelford "did approach my office during the waning hours of negotiations over the HAVA legislation to inquire whether recognition proposals for the Tigua tribe could be included in the bill."

The FEC records also show that Dodd collected $10,000 in contributions in 2002 and 2003 from four individuals and a political action committee associated with the big lobbying firm that employed Abramoff, Greenberg Traurig.

We know the enemy. He resides not in the wilds of Alaska or West Virginia, but in the off-shore banks, the corporate boardrooms and now plainly, the halls of Congress.

The End of Free Candy

P.J.O'Rourke, the conservative writer, once remarked: “The Republicans are a party that says government doesn't work - and then get elected and prove it.”

The American experiment, by which I mean its stumbling, often contrary, lunge towards a functioning representative democracy, has been at once a triumph and a failure. It has triumphed in terms of its wide influence and material possessions but failed in providing steadiness and harmony for its polity. In short it has succeeded to large extent by investing in the current whims of fashion. The country's economy, beginning with Henry Ford and his goal of planned obsolescence, has always depended upon an addiction to consumption-- a need for instant gratification that eviscerates stability and opposes reflection and prudent conservation. The current financial crisis is the result of a culture that both literally and metaphorically "eats without thinking".

As Rachel Maddow, our most brilliant political pundit so humorously described it: Our Wall Street titans are like six-year-olds unable to keep themselves from secretly gorging on the Halloween candy. Meanwhile our representatives in Congress instead of keeping a watchful eye grab their own fistfuls, leaving the public to clean up the six-year-old's vomit.

Victims of Greed

As Anatole Kaletsky asks: How did this disaster come to pass? And how can it be that the U.S. Treasury Secretary is such a financial dunce? One might as well ask how George W. Bush emerged from Harvard with a masters degree in business.

The genesis of the giant multi-national was spawned in the post-World-War-II impulse for unified markets and the American public's demand for ever-increasing quarterly profits. One didn't need to have knowledge to reach the corporate table, just a good enough gimmick to con the bankers long enough for sufficient cash to be raised before the next sure bet.

When Paulson announced his $700 billion “plan” the financial world heaved a sigh of relief. Finally, there would be a white knight to cover all our losses. Sadly, it quickly became clear that while Mssrs Paulson and Bernanke could construct a sophisticated model for the market function of a 12 to 1 leveraged reinsurance derivative, they had no clue how their theoretically-sound, computer-generated product would behave once that six-year-old was finished gobbling up all the candy. So what I first mistook as arrogance was actually sheer bluster. The swaggering demand at the end of Paulson's "mighty" three page paper that: "decisions by the Secretary pursuant to this Act are non-reviewable and may not be reviewed by any court of law or any administrative agency” was merely a bluff trying to fake real confidence.

Not So Sweet Irony

Were it not for the potential tragedy we all face because of their hubris we would be delighting in the deregulators' comeuppance. Remember this from the Republican Party Platform?

"We do not support government bailouts of private institutions. Government interference in the markets exacerbates problems in the marketplace and causes the free market to take longer to correct itself."

What Bush and Hank were saying just last week:


Well chaps you may pout and stamp your free-market feet but the world has had enough of your childishness. As the Financial Times now reports:

"The Bank of England has moved to inject longer term cash into money markets as part of a co-ordinated effort with the US Federal Reserve, the European Central Bank and the Swiss National Bank. The intervention follows the breakdown late on Thursday of talks over a $700bn bailout for the US financial system.

Money market traders said that interbank lending for terms longer than a day had come to a near standstill as counterparties feared that they may be lending to a bank that could suddenly become insolvent.

The Bank of England said it would extend $30bn in cash for a week against eligible collateral, drawing on currency swap lines put in place earlier this month with the Fed."

The US will lose its role as a global financial “superpower” in the wake of the financial crisis, Peer Steinbrück, the German finance minister, said on Thursday, blaming Washington for failing to take the regulatory steps that might have averted the crisis.

“The US will lose its status as the superpower of the world financial system. This world will become multi­polar” with the emergence of stronger, better capitalised centres in Asia and Europe, Mr Steinbrück told the German parliament. “The world will never be the same again.”

So there you have it. The world has moved on Mr. Paulson. You may stay in Washington and play more of your games hoping to spare yourself and Senator McCain your due punishment. Neo-liberalism is dead. The only thing left to see now, is whether or not there are enough grown-ups left in the country to give you and your Republican buddies a long-deserved spanking.

Too Much, Too Late (Updated)

Back in 2005, days before Christmas, I wrote this:

Bush's push to "privatize" social security is a
desperate attempt to revalue the stock market and give
a temporary boost to the dollar (while rewarding his
cronies). It is another short-sighted "fix" that could
not only destroy what is left of our middle class but
in the long run the market itself.

I'm convinced (as I mentioned previously) that Kerry rushed
to concede because the markets were tumbling
after our fraudulent presidential election.
Bottom line:- ever since Reagan destroyed the U.S.
manufacturing base to usher in "free markets" and
transform US into a military Brobdingnagian we have
become a nation of gangsters.

(update 2) What I should have said was that the entire international finance system was being managed by crooks and scoundrels.

"How SEC Regulatory Exemptions Helped Lead to Collapse

Barry Ritholtz--Sep 18, 2008

Is Financial Innovation just another word for excessive and reckless leverage? Apparently so. As we learn this morning via Julie Satow of the NY Sun, special exemptions from the SEC are in large part responsible for the huge build up in financial sector leverage over the past 4 years -- as well as the massive current unwind Satow interviews the above quoted former SEC director, and he spits out the blunt truth: The current excess leverage now unwinding was the result of a purposeful SEC exemption given to five firms. You read that right -- the events of the past year are not a mere accident, but are the results of a conscious and willful SEC decision to allow these firms to legally violate existing net capital rules that, in the past 30 years, had limited broker dealers debt-to-net capital ratio to 12-to-1.

So almost three years later, here we are. After scamming the public by pretending to create value out of air through means of spurious instruments comprised of esoteric bundles and magic-market derivatives, the Secretary of the U.S. Treasury (the man Goldman Sachs paid 18 and a 1/2 million dollars when he was nominated) proposes that we, the taxpayers, ameliorate the debt threatening to swallow the financial markets and cover for Bush's hand-picked cronies and thugs.

{Update addition} Go Kaptur!



Surprise, Surprise! (not!)

Paulson Debt Plan May Benefit Mostly Goldman, Morgan (Update2)

By Jody Shenn

Sept. 22 (Bloomberg) -- Goldman Sachs Group Inc. and Morgan Stanley may be among the biggest beneficiaries of the $700 billion U.S. plan to buy assets from financial companies while many banks see limited aid, according to Bank of America Corp.

``Its benefits, in its current form, will be largely limited to investment banks and other banks that have aggressively written down the value of their holdings and have already recognized the attendant capital impairment,'' Jeffrey Rosenberg, Bank of America's head of credit strategy research, wrote in a report dated yesterday, without identifying particular banks.

The last time a government tried a move this criminal it sparked a second Revolution. Karl Marx, in describing the 1871 civil war in France, explained that all but the elite felt compelled to rally around the outraged working classes. The empire had ruined the country's economy by the wholesale swindling it had fostered and by the props it lent to the artificially accelerated centralization of capital and concomitant expropriations for its foreign adventures.

Now surely, if ever a system cried out for destruction, it is the Ponzi scheme that passes for financial wizardry on Wall Street. When the French chose to throw off their corrupted masters the workers made up the bulk of the Paris Guard and could stand in battle against the Bonapartist army. Unfortunately for us, whether by luck or sinister design, our National Guards are off fighting our imperial war in Iraq, and despite the separate loyalties of our quasi-autonomous states, I suspect that few, if any, would consider confronting the United States Army.

Given that reality, it seems that either our Democrats in Congress will discover the spines they misplaced in the early 80's or not only will we be saying "we are all socialists now" as Jonathan Alter of Newsweek quipped to Rachel Maddow on MSNBC, but we will be begging to trade our dollars for yuan.

A year ago I regretted not having bought more euros, but now the rot has been spread through the entire system. So while some say Prussia, by annexing part of France in the 1870's, saved the French Commune and its valiant workers, our new Germans will not be offering much of a counter as they seem no less prone to a blind fling with Wall Street than our die-hard libertarians who see transparency as a plot against free enterprise.

Sadly, this is no longer 2005 and for the last eight years we have pretended a country can be run without competent management. Now the entire world is about to discover that wealth is neither produced by sheer might nor right out of thin air.

From Joseph Stiglitz, Nobel-Prize-winning Economist:

"America's financial system failed in its two crucial responsibilities: managing risk and allocating capital. The industry as a whole has not been doing what it should be doing - for instance creating products that help Americans manage critical risks, such as staying in their homes when interest rates rise or house prices fall - and it must now face change in its regulatory structures. Regrettably, many of the worst elements of the US financial system - toxic mortgages and the practices that led to them - were exported to the rest of the world."

Yet here comes Treasure Secretary, Paulson, after saying just last week that "no further bail-outs were warranted" seeking to extort 700 billion dollars from the government's coffers to be applied at his sole discretion:
His proposal's crowning paragraph reads like a bad joke:

"Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."

We'll have to wait and see if Congress falls for it.