via:  http://neweconomicperspectives.org/2012/12/the-second-great-betrayal-obama-and-cameron-decide-that-banks-are-above-the-law.html

By William K. Black
One of the “tells” that reveals how embarrassed Lanny Breuer (head of the Criminal Division) and Eric Holder (AG) are by the disgraceful refusal to prosecute HSBC and its officers for their tens of thousands of felonies are the false and misleading statements made by the Department of Justice (DOJ) about the settlement.  The same pattern has been demonstrated by other writers in the case of the false and disingenuous statistics DOJ has trumpeted to attempt to disguise the abject failure of their efforts to prosecute the elite officers who directed the “epidemic” (FBI 2004) of mortgage fraud.
HSBC was one of the largest originators of fraudulent mortgage loans through its acquisition of Household Finance.
Three recent books by “insiders” have confirmed earlier articles revealing the decisive role that Treasury Secretary Geithner has played in opposing criminal prosecutions of the elite banksters and banks whose frauds drove the financial crisis and the Great Recession.
Bair, Sheila, Bull by the Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself” (2012); Barofsky, Neil, Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street (2012); Connaughton, Jeff, The Payoff: Why Wall Street Always Wins (2012).
Geithner’s fear is that the vigorous enforcement of the law against the systemically dangerous institutions (SDIs) that caused the crisis could destabilize the system and cause a renewed global crisis.  I have often expressed my view that the theory that leaving felons in power over our largest financial institutions is essential to producing financial stability is insane.  Geithner, it turns out, is very sensitive to that criticism.  I will return to that subject after setting the stage.
The UK authorities admit openly the arrival of “too big to prosecute”
The title of the article in The Daily Telegraph says it all:  “Banks are ‘too big to prosecute’, says FSA’s Andrew Bailey.”
The FSA was the U.K.’s faux financial regulator during the run-up to the crisis.  The U.K. “won” the regulatory “race to the bottom” that destroyed effective regulation and supervision in the U.K. and Europe and helped degrade to near impotence in the U.S.  The FSA’s goal was to attract the world largest financial firms to relocate much of their operations to the City of London.  The FSA offered “light touch” (non) regulation and (non) supervision to firms operating in the City of London.  The results were the typical result – the City of London attracted the worst of the worst.  The “control frauds” produced a “Gresham’s” dynamic (Akerlof 1970) because the frauds gained a crippling competitive advantage over honest competitors and dishonest and unethical officers became wealthy through fraud and modern executive compensation’s perverse incentives.  “Control fraud” refers to criminal enterprises in which the people that control a seemingly legitimate enterprise use it as a “weapon” to defraud.  Control frauds can create a Gresham’s dynamic causes markets to become so perverse that bad ethics drive good ethics out of the marketplace.  The result was that the City of London became an intensely criminogenic environment and many of the largest financial firms in the world became criminal enterprises.
The newly designated head of the FSA decided to endorse the concept of “too big to prosecute.”

Mr Bailey told The Daily Telegraph that some banks had grown too large to prosecute. “It would be a very destabilising issue. It’s another version of too important to fail,” he said,
“Because of the confidence issue with banks, a major criminal indictment, which we haven’t seen and I’m not saying we are going to see… this is not an ordinary criminal indictment,” he said.
His comments come days after HSBC’s record $1.9bn (£1.2bn) settlement with the US authorities over money-laundering linked to drug-trafficking. US assistant attorney general Lanny Breuer said of the decision not to prosecute: “In this day and age we have to evaluate that innocent people will face very big consequences if you make a decision.”

The U.S. and U.K. have made noise lately about how they had ended the pernicious doctrine of “too big to fail.”  As I explained in a prior column, this pretense lasted about four hours before both nations’ true preferences were revealed.  The systemically dangerous institutions (SDIs) already had crippling competitive advantages because the government bailed out their general creditors.  Conservative economists agreed that this advantage was so large that it made “free markets” a farce.  The doctrine “too big to prosecute” grants SDIs that are control frauds two additional advantages over their smaller, honest competitors.  First, fraud pays enormously for the controlling officers.  It is a “sure thing.”  (Akerlof & Romer 1993.)  The HSBC compliance officers (the minnows) may lose, but the controlling officers were made very wealthy by HSBC’s manifold frauds. (continued at link above)

Episode 370

­Every week Max Keiser looks at all the scandal behind the financial news headlines. 
In this episode, Max Keiser and Stacy Herbert ask, “Who knows what evil lurks in the heart of the global financial system?” and find an answer: “The shadow banking system knows!”  The shadow banking system has grown to $67 trillion, and has the power to cloud men's minds so they cannot see the fraud. In the second half of the show, Max Keiser talks to Jan Skoyles of the Real Asset Company about clients wanting to park their gold in Singapore, and about what is happening in the gold market in China.

Via:Fire Dog Lake news desk

http://news.firedoglake.com/2012/11/08/boehner-opens-grand-bargain-negotiations-by-proposing-the-romney-plan/ By: David Dayen Thursday November 8, 2012 6:26 am

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I touched on this yesterday, but let’s take a closer look at John Boehner’s opening offer on revenue, designed to avoid the fiscal slope (it’s not a cliff). I think it will become familiar to you if you look at the exact language.

For the purposes of forging a bipartisan agreement that begins to solve the problem, we’re willing to accept new revenue under the right conditions. What matters is where the increase revenue comes from and what type of reform comes with it. Does the increased revenue come from government taking a larger share of what the American people earn through higher taxe rates? Or does it come as a byproduct of growing our economy, energized by a simpler, cleaner, fairer tax code, with fewer loopholes and lower rates for all? And at the same time we’re reforming the tax code, are we supporting growth by taking concrete steps to put our country’s entitlement programs on a sounder financial footing or are we just going to continue to duck the matter of entitlements, thus the root of the problem?

So Boehner is calling for an across the board rate cut, paid for by (and actually with a revenue gain from) closing loopholes and deductions. All the while, he wants to “reform” entitlements to reduce the cost to government.
Now where have I heard that before? Oh yeah, it’s the Mitt Romney platform. The one defeated at the polls. Boehner’s opening bid is just the Romney tax plan, made even more ludicrous by the notion that you can increase revenue with it. Romney was widely mocked during the election for trying to make a large rate cut revenue-neutral; here Boehner wants to add to the fantasy world. He also alludes to the idea that lowering tax rates will increase economic growth and therefore tax receipts. This is precisely the claim that was debunked by the Congressional Research Service study of 65 years of tax rates, which Republicans found so dissonant and offensive, they got the study torpedoed.
Boehner’s lower-the-rates, broaden-the-base gambit has already been rejected by the likes of Chuck Schumer. He’s already blown up the tax reform con. And he got backed up by the Democratic leadership in the Senate. So if it comes back, we know exactly where it came from – the White House.
Apparently the President was busy calling leaders of Congress yesterday:

In phone calls made overnight and this morning from Chicago, Obama said much the same thing to Boehner, Senate Majority Leader Harry Reid (D-Nev.), Senate Minority Leader Mitch McConnell (R-Ky.) and House Minority Leader Nancy Pelosi (D-Calif.). He said he believed that the American people sent a message that leaders in both parties need to put aside their partisan interests and work with common purpose to put the interests of the American people and the American economy first.

Boehner said yesterday that “We’re closer than many think to the critical mass needed legislatively to get tax reform done.” Which I suppose he has to say. But he’s offering nothing more than the Romney tax plan, PLUS cuts to Social Security and Medicare! And he wants a $100 billion in spending cuts, replacing the sequester, by the end of the year, as a show of good faith in getting to a deal.
It’s like campaign 2012 never happened.

editor's note- Sorry for the lapse in the site I've been all caught in the Matrix for three months,...so...stay tuned for the story and all the gory details straight from the horses mouth.Thanks for your patience, and keep the love coming .
-Figg

Insider Report on Big Pharma’s Corrupt Marketing and Phony Science

Posted: 04 Jul 2012 11:01 PM PDT

Francois T pointed to a post at the blog Health Care Renewal that summarizes an important insider report at the British Medical Journal on how much so-called medical research is of dubious validity, and performed to give talking points for marketing rather than to improve the lives of patients.
The reports on the corruption is big Pharma “research” are so rife that this account hardly qualifies as news. For fun, I dug up the notes from a 2004 study in which I interviewed some experts on drug company marketing. The reason? Even then, it was seen as the most effective, and a big financial services client was keen to see what techniques they could adopt from it. Even then, it was clear “research” was seen as key to effective selling. Per one interviewee, on sales reps:

Creativity is NOT what you want for this job. You do not want someone who is creative in their dealings with doctors. Everything they say is according to very strict guidelines…The words they can share with the doctor are all carefully crafted and screened by the FDA. They can’t deviate from the script. If they deviate, they get in trouble, they get the company in trouble along with them. All the scandals in the industry were the salesforce management and the company, not the sales reps.
One reason Pfizer is effective is new product introductions. There is so much revenue and expectation behind it that they get the sales force keyed up about it. They know from the FDA when a product is going to be coming to market. They have the launches in nice places. They fly all the salesforce in, 500 people to a launch in Florida. They bring in entertainment, motivational speakers. Senior management flies down. There is a rigorous presentation fo the program and the product, information on the product, its advantages and disadvantages relative to the competitors.
They also have three times a year meetings to update the sales management on all the currently marketed products. They are called POA, plan of action meetings. It is whatever that will be new from a marketing standpoint over the next six months Each brand marketing group has to come up with new material to keep the sales force interested, like new data from recent studies. If they don’t have something new, the salesforce loses its edge. It also includes promotional pieces, like notepads, pens, It may seem silly, but the doctors love this stuff. And if a doctor says, bring me 5 more of those pens, my friends like them, it does maek a difference. You don’t like to think that stuff like that influences what a doctor prescribes, but it does.

And keep in mind, the costs of manipulated research findings are real. Cathy O’Neil, aka mathbabe, wrote up one of the most deadly cases, Vioxx. The summary of her detailed post:

Madigan has been a paid consultant to work on litigation against Merck. He doesn’t consider Merck to be an evil company by any means, and says it does lots of good by producing medicines for people. According to him, the following Vioxx story is “a line of work where they went astray”.
Yet Madigan’s own data strongly suggests that Merck was well aware of the fatalities resulting from Vioxx, a blockbuster drug that earned them $2.4b in 2003, the year before it “voluntarily” pulled it from the market in September 2004. What you will read below shows that the company set up standard data protection and analysis plans which they later either revoked or didn’t follow through with, they gave the FDA misleading statistics to trick them into thinking the drug was safe, and set up a biased filter on an Alzheimer’s patient study to make the results look better. They hoodwinked the FDA and the New England Journal of Medicine and took advantage of the public trust which ultimately caused the deaths of thousands of people.

To give an idea of the significance of the Vioxx withdrawal: per O’Neill, it led to a meaningful drop in the overall death rate in the US in the following 12 months.
Nevertheless, what is chilling in this insider account at BMJ is the sense of how pervasive and institutionalized the subordination of science, and worse, concern for the public, is to pushing drugs.
I strongly urge you to read the post in full (I’d love to read the BMJ article, but it is seriously paywalled). This section is key (emphasis original):

Research Studies Designed Primarily as Marketing Vehicles
In general, the anonymous author suggested that at least some studies were done for marketing, not scientific purposes:

some of the studies I worked on were not designed to determine the overall risk:benefit balance of the drug in the general population. They were designed to support and disseminate a marketing message.
Whether it was to highlight a questionable advantage over a ‘me-too’ competitor drug or to increase disease awareness among the medical community (particularly in so called invented diseases) and in turn increase product penetration in the market, the truth is that these studies had more marketing than science behind them.

Furthermore, the studies were supervised not by physicians or scientists, but by marketers in the marketing department,

Although the medical department developed the publication plans, designed the study, performed the statistical analysis, and wrote the final paper (which when published was passed on to marketing and sales to be used as marketing material), the marketing team responsible for that product were directly involved in all stages. They also closely supervised the content of other educational ‘scientific’ materials produced in the medical department and intended for potential prescribers. Instructions from marketing to the medical staff involved were clear: to ensure that the benefits of the drug were emphasised and the disadvantages were minimised where possible.

Manipulation of Research Design, Implementation, or Analysis
The author described how the marketers manipulated research studies so they would produce the results desired from a marketing perspective, regardless of their underlying truth,

Since marketing claims needed to be backed-up scientifically, we occasionally resorted to ‘playing’ with the data that had originally failed to show the expected result. This was done by altering the statistical method until any statistical significance was found. Such a result might not have supported the marketing claim, but it was always worth giving it a go to see what results you could produce. And it was possible because the protocols of post-marketing studies were lax, and it was not a requirement to specify any statistical methodology in detail. On the other hand, the studies were hypothesis testing (such as cohort studies, case-control studies) rather than hypothesis generating (such as case reports or adverse events reports), so playing with the data felt uncomfortable.
Other practices to ensure the marketing message was clear in the final publication included omission of negative results, usually in secondary outcome measures that had not been specified in the protocol, or inflating the importance of secondary outcome measures if they were positive when the primary measure was not.

Given how much of what passes for medical research is performed by drug companies, and how much of medical education revolves around pharmaceuticals, the adulteration of research is profoundly disturbing. We’re rolling back the underpinnings of medicine to the days when quackery reigned, except this time, with the authority of the medical profession and the mysticism of science behind it.
So to summarize, the marketers would control the statistical analyses, promoting multiple analyses to attempt to come up with the “right” result that would support the marketing message (although the more kinds of analyses one tries, the more likely one is likely to come up with false results by chance alone). Presumably the marketers did not care whether or not the results were really true, which is perhaps why even they felt “uncomfortable” in some circumstances.
They would also foster the suppression of negative results, and the dredging of data for extra outcome measures when analysis showed no advantage in terms of the real primary outcomes. Suppression of negative results could be viewed as plain lying. Deliberate analysis of multiple end-points again risks identifying random error as true results.

BAILOUT: Former Bailout Watchdog Neil Barofsky to Release Tell-All Account Of Bush/Obama Administration Banking Policies

Posted: 24 May 2012 11:22 AM PDT

Neil Barofsky, a former official who actually put bankers in jail (imagine that!) is coming out with a tell-all book called “Bailout” about his experience as the Special Inspector General for TARP.  I don’t normally put up press releases, but this book will be upsetting to the administration because this is someone who was involved in the decisions, and Barofsky did not play ball with the Wall Street crowd.  Here’s the announcement.

From December 2008 until March 2011, Barofsky was the Special Inspector General charged with oversight of TARP, working to ensure against fraud and abuse in the spending of the $700 billion allocated for the bailouts. From the start he was in constant conflict with the officials at the Treasury Department in charge of the bailouts who were in thrall to the interests of the big banks and steadfastly failed to hold them accountable, even as they disregarded major job losses caused by the auto bailouts and failed to help struggling homeowners. Barofsky recounts how his reports of a wave of criminal mortgage fraud and other abuses being perpetrated against homeowners in connection with programs that the Treasury itself set up were ignored time and again.
Barofsky offers detailed accounts of the behind-the-scenes conflicts and his struggles with Treasury Secretary Timothy Geithner, the Bush appointed “TARP Czar” Neel Kashkari and his successor, the Obama appointed Herb Allison, and others. His revelations show in stark detail just how captured by Wall Street our political system is; why the banks have not been held accountable; and how the failure to enact effective regulation has put the country in danger of an even bigger crisis in the future.

There are two broad narratives about Barack Obama from American elites.  On the right, there’s a racist narrative about Obama’s socialist Kenyan origins, with offshoot dishonest arguments about his policies.  He’s anti-corporate!  He’s gone on a government spending frenzy!  He’s going to cut the size of the military!  These are not true.  On the Democratic side, there’s an equally dishonest set of arguments.  He’s not bold enough!  Congress is holding him back from his progressive instincts!  We haven’t made him do what we know he wants to do!  The real Obama is hidden behind a racist veneer on the right, that he’s a Kenyan socialist, and a fake narrative on the left, that he’s not bold enough.  The third narrative, which you can find on this blog, is that Barack Obama is a great deceiver, with a charming and cool demeanor that mask his ruthlessness and bank-friendly neoliberal ideology.  It’s hard to talk to this third narrative, because Democrats overwhelmingly approve of Obama, and Republicans simply cannot countenance the idea that their socialist enemy is as friendly or even more friendly to corporate power than they are.
But there are a few brave souls who are speaking truth, and the information about who Obama is and what he has done is slowly coming out.  Charles Ferguson’s excellent new book, Predator Nation: Corporate Criminals, Political Corruption, and the Hijacking of America, is the first post-mortem of the financial crisis in which the lens is political corruption in both parties and in economics.  Ferguson, who made the Academy Award documentary Inside Job, sees the financial crisis first and foremost as a political problem, of oligarchy and a captured political system.  The technical details – Volcker Rule, Dodd-Frank, etc – are just that.  Ferguson isn’t dancing around the problem, either.  He puts the blame on, among other people, Bill Clinton and Barack Obama.  I’ll have more on this book.
Still, very few elite actors are actually giving talking to this third narrative.  We can see this in the 2012 election, in which, for all its fake heat, Romney and Obama are both trying as best they can to nose each other out, while promising virtually nothing of economic substance to the public.  Romney and Obama are simply talking to economic elites who will pay them off - occasionally this becomes obvious, as we’re seeing with a recent flap over private equity.  Corey Booker’s comments, when he called attacks on private equity “nauseating”, brought in a brief flash to the public the hidden election of elites behind the scenes making decisions about who to back and why.  In the actually race itself, the polling is dead even, and has been since Romney consolidated the nomination.  Neither candidate has much power to shift the polls, except through gruesome errors or by talking to voters instead of the economically powerful interests who fund them.  The latter won’t happen, the former might.  At this point, Alexis Tsipras in Greece and Angela Merkel have more power over the American election than either candidate.
The reality is that it is the strength of Obama’s narrative, and the lack of a left-wing analysis of who he is as a person, that gives Obama all the cover he needs to enact bank-friendly policies.  You can see this strength in the utter lack of an effective comedic impersonator of Barack Obama.  When Tina Fey first gave her impression of Sarah Palin, the political world exploded in chatter about how perfectly Fey had captured Palin’s character.  Will Ferrell nailed something about Bush (as did my favorite impressionist, James Adomian), a kind of juvenile cunning frat-boy type spirit.  American comics play the role of the jester, and are sometimes the only ones who can speak truth to power.  The comedy world has produced a series of people who can mimic what Obama sounds like, but these people tend to see him as having a heart of gold and hiding his anger at the Republicans.  There is no comedian who has captured the breezy self-aware cynicism, the way that Obama dishonestly promises actions he does not intend to follow through on, while giving a sort of running commentary as a meta-pundit on himself and the political system.
A third narrative needs to emerge.  A true impression of Obama would be both devastating and hilarious.  It would also require a profound level of bravery and skill to showcase a picture of the first black President as a corrupt plutocrat.  This lack of comedic insight is directly related to the broader phenomenon of American elite dishonesty about Barack Obama.  Comedians get their information largely from the news, and from elite actors who tell them about what is going on.  As more people who have direct experience with the administration, people like Barofsky, give clear details about the policy choices (and they are choices, the system is not set in stone) that this administration made, the strength of Obama’s narrative will erode.

via:Naked Capitalism

Quelle Surprise! Barclays Settlement on Massive Interest Rate Price Fixing Illustrates Bank Crime Pays Well

Posted: 27 Jun 2012 11:05 PM PDT

It’s become oh-so-predictible that banks get at most “cost of doing business” punishments that they almost seem not worth noting. But that’s precisely why it’s important to keep tabs on them, to let the complicit authorities and the perps know that the public is not fooled, even it is not in a position to do anything about it…yet…
Even though the Libor/Euribor price-fixing scandal hasn’t gotten much attention in the US, this is a really big deal. Admittedly, it did not crash the economy the way toxic RMBS and CDOs did. Instead, it was a massive price manipulation, the sort of victimless-looking crime where stealing a few basis points over a monster volume of transactions has a huge aggregate impact. This scheme went on for a full five years, with 20+ banks fingered, meaning everyone who was anyone was in on the game. As Ben Walsh put it:

The importance of Libor and, to a lesser extent, Euribor, is hard to overstate. They are used to value of hundreds of trillions of dollars of financial instruments. Or as Matt Levine puts it, they “set the rates on pretty much all the loans and swaps in the world … CFTC order mentions $350 trillion of [over-the-counter] swaps, $10 trillion of loans, and $437 trillion of CME eurodollar contracts indexed to Libor alone”.

Barclays is first to settle, and given the scale and potential profitability of this activity, the fine looks paltry: $450 million among the FSA, the CFTC, and the Department of Justice (£230 million to the US authorities, £60 million to the FSA). The DOJ has granted “conditional leniency” on anti-trust charges. Price fixing is criminal under the Sherman Act. Four top executives, including CEO Bob Diamond are also giving up bonuses this year.
It’s a bit early to reach hard conclusions, since Barclays got reduced penalties for cooperating early. We’ll be able to calibrate the degree of lack of seriousness by the punishments meted out on the other banks. But there is no reason to think we’ll see a sea change, despite the magnitude and duration of this scheme. Masaccio correctly included the settlement in a list of “This Week in Financial Not-Crime.” Guardian’s editorial inveighs on why much more serious action is needed:

The £60m it [Barclays] will hand over to the Financial Services Authority alone is the biggest penalty ever levied by the City watchdog – yet the nature of the alleged transgression is so fundamental, so serious and, according to officials, so “widespread” that it appears utterly inadequate. Nor will the decision of Mr Diamond and his team to apologise and forfeit this year’s bonuses take the sting out of the matter…
What regulators appears to have uncovered is a scam at the heart of a £350tn market; one that ultimately affects how much families pay on their tracker mortgages, as well as the costs of transactions for big City institutions. It should not be settled with a fine, no matter how large, but must be followed up with a further investigation into Barclays – making public just how many employees took part (rather than yesterday’s mentions of Trader C and Manager E), and how they will be punished, up to and including criminal proceedings…
Strip away the acronyms and the charges against Barclays are straightforward. Its traders and senior management are accused of tampering with two key interest rates to bolster their own profits. And they apparently did this not once, but repeatedly over four years. Indeed, the practice seems to have become so widespread that staff joke about it in emails: “Always happy to help, leave it with me, Sir.”; “Done … for you big boy”; “I love you”. This from the bank that earlier this year held citizenship days for its staff – and which, through state guarantees and emergency provisions of liquidity, has been supported by the British taxpayer.
There has been much talk about banks being too big to fail, or too big to bail. The picture presented by Wednesday’s charge sheets is altogether simpler: throughout boom and bust, Barclays staff saw themselves as being too big to play by the rules.

The e-mails get at what is most disturbing about this, the banality of it all. At least with Bankers Trust, the public was roused by recordings of traders who discussed ripping clients’ faces off and luring them into the dark to fuck them. The anodyne nature of these crimes, the routinized ripping off of the public on a scale hard to imagine, took place via small nicks over all the deals in huge swathes of the capital markets.
The Financial Times holds out some hope, pointing out that the European Commission was not part of the settlement and is continuing its own probe. The authorities can still target individuals at the bank. And it is vulnerable to private suits:

While the settlements focus on “attempted manipulation”, the DoJ statement of facts said, “on some occasions, however, the manipulation of Barclays’ submissions affected the fixed rates,” a statement that could leave the bank open to class action lawsuits from Libor users.

But all we need to do is contrast this case with the municipal bid-rigging prosecution described by Matt Taibbi in the current Rolling Stone. Here you have three individuals at GE Capital going to jail for price fixing, which is crime under the Sherman Act. But they were merely the arms and legs of big banks. Where were the prosecutions of the higher ups, or of the senior officers of banks who were in on this con? We see the same pattern over and over: justice is meted out only on the foot soldiers, those far enough away from the executive ranks so as not to call into question the integrity of the system. The irony of it all is the public is well aware of how crooked the financial services industry is (the poll data alone is proof). But for the elites, it is vital that they not admit that something is rotten in Denmark, for if they did, they’d have to do something about it.

Why Don’t Americans Take More Vacations? Blame It on Independence Day

Posted: 27 Jun 2012 03:55 AM PDT

An article in the Boston Review by professor of sociology Claude Fischer falls prey to a pattern that is all too common: attributing social/political outcomes to American attitudes without bothering to examine why those attitudes came to be.
Let me give you a bit of useful background before I turn to the Fischer article as an illustration of a lack of curiosity, or worse, among soi disant intellectuals in America, and how it keeps Americans ignorant as to how many of our supposed cultural values have been cultivated to inhibit disruptive thought and action.
Since I have managed to come in on the last act of Gotterdammerung and am still trying to find the libretto, I’ve been in what little spare time I have reading history, particularly on propaganda. One must read book is by Alex Carey, Taking the Risk Out of Democracy. Carey taught psychology in Australia, and he depicts the US as the breeding ground for the modern art of what is sometimes more politely called the engineering of consent. The first large scale campaigns took place before World War I, when the National Association of Manufacturers began its decades-long campaign against organized labor. Carey stresses that propaganda depends on cultivating Manichean perspectives, the sacred versus the Satanic, and identifying the cause to be promoted with symbols that have emotional power. For many people, Americans in particular, patriotism is a rallying point.
Carey demonstrates how, again and again, big business has managed to wrap itself in the flag, and inculcate hostility to unions. One of the early struggles was over immigrants. A wave of migration from 1890 to 1910 left many citizens concerned that they were a threat to the American way of life. Needless to say, corporations were opposed to restrictions on immigration, since these migrants were willing to accept pretty much any work. Thus the initial alignment of interests was that whole swathes of American society were allied with the nascent labor movement in opposing immigration. And this occurred when even conservatives saw concentrated corporate power as a threat to American values (witness the trust busting movement, the success of the Progressives).
Big business split these fair weather friends by promoting an Americanization movement. These foreigners simply needed to be socialized: taught to speak English, inculcated in American values. In addition, the radical International Workers of the World had become a force to be reckoned with, culminating in its success in the Lawrence textile mill strike in 1912. So even though labor unions were particularly hostile to immigrants, the IWW’s leadership role made it possible to cast unions as subversive, a symbol of foreign influence.
The counterweight, the Americanization movement, was born in 1907 with the establishment of the North American Civic League for Immigrants, headed by conservative businessmen. Aligned groups. such as the New England Industrial Committee, were created as NACLI promoted its program.
The success of the Lawrence strike, which garnered national outrage due to police beatings of women who had volunteered to transport and harbor children of strikers, increased the urgency of countering the union threat. The message was that chambers of commerce, as “conservators of the ‘best interests’ of their communities” needed to educate (as in domesticate) adult alien workers. This Americanization movement had business backers in every sizable city with an immigrant population doing outreach to business organizations, church leaders, and other community groups. In 1914, NACLI decided to extend its program nation-wide, and changed its name to the Committee for Citizens in America. The CIA paid and provided staff to the Department of Education to sponsor Americanization programs (private interests’ ability operate directly through the Federal government ended in 1919).
The outbreak of World War I was a Godsend to the Americanization movement. The war stoked nationalist sentiment and with it, suspicion of obvious aliens as at best “un American” and at worst, subversive. President Wilson spoke at a highly staged “patriotic” event for 5000 recently naturalized citizens in spring 1915. This event was so successful that the movement leaders succeeded in forming local Americanization committees all over the US. Quoting Carey:

The CIA also produced a brilliant propaganda strategy to involve every American in an annual ritual of national identification. This ritual would embed the cultural intolerance of the Americanization movement with an identification that was formally and officially sanctified. The CIA thereby launched its campaign for the fourth of July 1915 to be made a national Americanization Day, a day for a ‘great nationalistic expression of unity and faith in America’.

Carey describes and quotes a pamphlet promoting the event written by one of the executive committee members:

….the ultimate success of the policy would depend on how effectively the ‘average American citizen’ could be induced to bring the influence of his conservative views to bear on the immigrant….’such a citizen is the natural foe of the IWW and of the destructive forces that seek to direct unwisely the expressions of the immigrant in his nwe country and upon him rest the hope and defense of the country’s ideals and institutions.’ Here we have a blatant industrial and partisan view fused with an intolerance of the immigrant and values of national security, in a submission that would cement these interests and intolerances within the paraphernalia of the annual ritual of what would become Independence Day.

This hidden history of our national celebration is only a small portion of Carey’s account of the extent and reach of the Americanization campaign. It shows how big business has led a long standing, persistent, and well financed campaign to turn the public against fighting for one’s rights if those rights are workplace rights.
Now let’s look at the Fischer article in light of this. He does, usefully, describe how Americans toil far more than their advanced economy peers:

Americans just don’t vacation like other people do. Western European laws require at least ten and usually more than twenty days. And it’s not just the slacker Mediterranean countries. The nose-to-the-grindstone Germans and Austrians require employers to grant at least twenty paid vacation days a year. In the United States, some of us don’t get any vacation at all. Most American workers do get paid vacations from their bosses, but only twelve days on average, much less than the state-guaranteed European minimum. And even when they get vacation time, Americans often don’t use it.
Perhaps Americans are Protestant-ethic work obsessives; we are likelier than Europeans to say that we want to work more hours than we do. But this leisure gap is a recent development. In the 1960s Americans and Europeans worked about the same number of hours. Leisure time then expanded everywhere—only more slowly and much less in the United States than elsewhere, leaving today’s disparity. Some argue that high taxes in Europe discourage working, but economist Alberto Alesina and his colleagues point to legislation—that is, politics. The right to a long vacation is one of the benefits that unions and the left have in recent decades delivered to Western workers—except American ones.

This sets up the key question:

Just about everywhere in the West except the United States, where there is no mandatory paid time off, workers not only get vacations but also short work weeks, government health care, large pensions, high minimum wages, subsidized childcare, and so forth. Why is the United States the exception?
The answer comes in two general forms: one, Americans do not want such programs and perks because we do not want the kind of government that would legislate them. Two, Americans want them but cannot get them.

Fischer’s teasing out of the first “answer” (he offers only two options and later points out that they are not mutually exclusive) is an embarrassment. He claims Americans have little “class consciousness” and in passing contends well financed propaganda efforts have no effect:

Even though economic inequality is substantially greater in the United States than in Europe, Americans acknowledge less economic inequality in their society than Western Europeans do in theirs, and Americans are more likely to describe such inequality as fair, deserved, and necessary. Americans typically dismiss calls for the government to narrow economic differences or intrude in the market by, say, providing housing. Working-class voters in the United States are less likely than comparable voters elsewhere to vote for the left or even to vote at all.

Anyone who has studied the history of public relations in the US will not only tell you it works, and will be able to provide numerous examples, starting with the Creel Committee in World War I, which turned a pacifist US into rabid German-haters in a mere 18 months. But Fischer would rather appeal to Americans’ vanity and exceptionalism. Carey, by contrast, documents the intensity of messaging efforts, the channels used, and tracks how polls and headlines changed. And contra Fischer, he finds Americans to be particularly susceptible to propaganda (by contrast, Australians’ native skepticism of authority, keen sense of irony, and strong community orientation gives them a wee bit of resistance, although Carey described how they were being worn down too).
Mark Ames wrote on the same topic in 2006, and his article is more on point:

According to a New York Times article, British workers get more than 50% more paid holiday per year than Americans, while the French and Italians get almost twice what the Americans get. The average American’s response is neither admiration nor envy, but rather a kind of sick pride in their own wretchedness, combined with righteous contempt for their European worker counterparts, whom most Americans see as morally degenerate precisely because they have more leisure time, more job security, health benefits and other advantages.
It’s like a classic case of East Bloc lumpen-spite: middle Americans would rather see the European system collapse than become beneficiaries themselves. If there is one favourite recurring propaganda fable Americans love to read about Europeans, it’s the one about how Europe is decaying and its social system is on the verge of imploding; we Americans pray for that day to come, with even more fervour than we pray for the End of Days, because the very existence of these pampered workers makes us look like the suckers and slaves we really are. This is why you won’t see Bono or Sir Bob Geldof rallying the bleeding-hearts anytime soon on behalf of America’s workers. They’re not in the least bit sympathetic. Better to stick with well-behaved victims like starving Africans.
The cultural propaganda that accompanied the Reagan Revolution has been so hugely successful that America’s workers internalised it too well, like those famously fanatical Soviet workers who literally worked themselves to death in order to help bring true communism that much closer. According to Expedia, American workers save their employees some $21 billion per year by not taking even the meagre vacation time they’re allowed.

Now in fairness to those office slaves, while Americans buy into the “always on duty” attitude (I noticed how little smart phones and IPads were visibly in use, even in the toniest parts of London, compared to New York City), some of it is rational. Even before the bust, it was hard for anyone over 35 who loses a job to land another, much the less at the same level of pay, job tenures are short, and companies keep squeezing workers. Everyone I know who is still on the corporate meal ticket is doing what would have been one and one half or two jobs ten years ago.
So while there is no easy way to turn to regain control of a cultural commons so throughly under the sway of well heeled corporate interests, perhaps we can start to engage in small acts of reprogramming. While I am not telling you to skip Fourth of July fireworks, it might be time to recognize key events that help us look at our history with fresh eyes. Perhaps we should quietly celebrate what we still have of the America our founders envisaged, say on the anniversary of the signing of the articles of Confederation (a protracted affair, with the last signature affixed on March 1, 1781) or their replacement with the Constitution on March 4, 1789. But regardless of how individuals go about it, the more we recognize how cultural memes are created and propagated, the more hope we have of freeing ourselves from them. (via: Naked Capitalism)

Yes Lab Gives US Trade Negotiators “Corporate Power Tool” Award

Posted: 12 May 2012 09:10 PM PDT

The Yes Lab is a is brainstorming/training effort associated with the Yes Men to help activists subject people in positions of influence to well deserved ridicule. Aquifer highlighted their latest project, which was infiltrating an award ceremony for a trade group in Dallas and bestowing their own prize.
Unfortunately, it looks like the police intervention interfered with the best parts being captured on tape.
This part (from in the press release) describes the part not recorded (with some overlap for continuity):

The crowd of negotiators and corporate representatives applauded, and “Haversall” continued: “I’d like to personally thank the negotiators for their relentless efforts. The TPP agreement is shaping up to be a fantastic way for us to maximize profits, regardless of what the public of this nation—or any other nation—thinks is right.”
At that point, the host of the reception took the microphone back and announced that the evening’s formal programming had concluded. But Mr. Haversall confidently re-took the microphone and warmly invited Kirk to accept the award.
Kirk moved towards the stage, but federal agents blocked his path to protect him from further embarrassment. At that point, a dozen well-dressed “delegates” (local activists, some from Occupy Dallas) broke into ecstatic dance and chanted “TPP! TPP! TPP!” for several minutes until Dallas police arrived.
Fifteen minutes later, another dozen interlopers from Occupy Dallas interrupted the reception with a spirited “mic-check.” Outside, activists projected a message on the hotel, and throughout the night, delegates discovered that hundreds of rolls of custom toilet paper had been installed in the conference venue.

And this was the objective:

The activists disrupted the gala to protest the hijacking of trade negotiations by an extreme pro-corporate agenda. “The public and the media are locked out of these meetings,” said Kristi Lara from Occupy Dallas, one of the infiltrators. “We can’t let U.S. trade officials get away with secretly limiting Internet freedoms, restricting financial regulation, extending medicine patents, and giving corporations other a whole host of other powers allowing them to quash the rights of people and democracies, for example by offshoring jobs in ever new ways. Trade officials know the public won’t stand for this, which is why they try to keep their work secret—and that’s why we had to crash their party.”

Frankly, so many corporate events are boring, self-important, and in thrall to bad ideas or narrow interests that the more derision, the better. I hope we see a lot more of this sort of thing.

Mark Ames: The Left’s Big Sellout – How the ACLU and Human Rights Groups Quietly Exterminated Labor Rights

Posted: 23 Jun 2012 11:41 PM PDT

By Mark Ames, the author of Going Postal: Rage, Murder and Rebellion from Reagan’s Workplaces to Clinton’s Columbine. Cross posted from The Daily Banter.


Progressive intellectuals have been acting very bipolar towards labor lately, characterized by wild mood swings ranging from the “We’re sorry we abandoned labor, how could we!” sentiment during last year’s Wisconsin uprising against Koch waterboy Scott Walker, to the recent “labor is dead/it’s all labor’s fault” snarling after the recall vote against Gov. Walker failed.
It must be confusing and a bit daunting for those deep inside the labor movement, all these progressive mood swings. At the beginning of this month, New York Times’ columnist Joe Nocera wrote a column about having a “V-8 Moment” over the abandonment of labor unions, an abandonment that was so thorough and so complete that establishment liberals like Nocera forgot they’d ever abandoned labor in the first place!
The intellectual-left’s wild mood swings between unrequited love towards labor unions, and unrequited contempt, got me wondering how this abandonment of labor has manifested itself. While progressives and labor are arguing, sometimes viciously, over labor’s current sorry state, one thing progressives haven’t done is serious self-examination on how and where this abandonment of labor manifests itself, how it affects the very genetic makeup of liberal assumptions and major premises.
So I did a simple check: I went to the websites of three of the biggest names in liberal activist politics: Amnesty International, Human Rights Watch, and the ACLU. Checking their websites, I was surprised to find that not one of those three organizations lists labor as a major topic or issue that it covers.
Go to Amnesty International’s home page at www.amnesty.org. On the right side, under “Human Rights Information” you’ll see a pull-down menu: “by topic.” Does labor count as a “Human Rights topic” in Amnesty’s world? I counted 27 “topics” listed by Amnesty International, including “Abolish the death penalty”, “Indigenous Peoples”, “ “Children and Human Rights” and so on. Nowhere do they have “labor unions” despite the brutal, violent experience of labor unions both here and around the world. It’s not that Amnesty’s range isn’t broad: For example, among the 27 topics there are “Women’s rights”, “Stop Violence Against Women” and “Sexual Orientation and Gender Identity”. There’s even a topic for “Business and Human Rights”—but nothing for labor.
Puzzled, I called Alex Edwards, Amnesty’s Media Relations guy in Washington DC, to ask him why labor unions didn’t rate important enough as a “topic” on Amnesty’s “list of topics.” Edwards was confused, claimed that he was totally unaware that there was a “list of topics” on Amnesty’s home page, and promised to get back to me. I haven’t heard back from him.

Amnesty’s “Topics”: Labor rights “disappeared”

Next, I checked Human Rights Watch. From my experience in Russia and Eastern Europe, I’ve learned to expect less from HRW than I would from Amnesty—my memory of HRW during the Kosovo conflict and in others is that, when called to, HRW acts as a propaganda arm for the liberal hawk war party. But HRW has also done a lot of important good work in areas not covered by the press, and they’re certainly better than most—so does Human Rights Watch consider labor unions an important human rights issue?
Checking Human Rights Watch’s homepage (www.hrw.org), there’s a tab listing “topics”—14 topics in all. Once again, labor is not listed among Human Rights Watch’s covered “topics.” Instead, Human Rights Watch lists everything from “Children’s Rights” to “Disability Rights” to “LGBT Rights” and “Women’s Rights”—along with “Terrorism”, “Counterterrorism” and, I shit you not, “Business”—as vital human rights topics. But not labor. “Business”—but not “Labor.”
On the advice of an old friend, Jan Frel, I read an excellent book on the human rights industry, James Peck’s Ideal Illusions, which helps answer why labor rights have been airbrushed out of the language of human rights. It wasn’t always this way: Economic rights and workplace rights were for decades at the very heart of the human rights movement. This was officially enshrined in 1948, when the United Nations adopted a 30-point “Universal Declaration of Human Rights” putting labor rights and economic equality rights alongside those we’re more familiar with today, like freedom of expression, due process, religion and so on. But somehow, labor rights and economic justice have been effectively amputated from the human rights agenda and forgotten about, in tandem with the American left’s abandonment of labor.
In Peck’s history, Human Rights Watch stands out as a force for rank neoliberalism, a major player in the extermination-by-omission of labor rights and economic equality rights from the language of human rights. How this happened sheds at least a bit more light on how the left abandoned labor.
Aryeh Neier, founder of Human Rights Watch and its executive director for 12 years, doesn’t hide his contempt for the idea of economic equality as one of the key human rights. Neier is so opposed to the idea of economic equality that he even equates the very idea of economic equality and justice with oppression—economic rights to him are a violation of human rights, rather than essential human rights, thereby completely inverting traditional left thinking.
Here’s what Neier wrote in his memoir, Taking Liberties:

“The concept of economic and social rights is profoundly undemocratic… Authoritarian power is probably a prerequisite for giving meaning to economic and social rights.”

Neier here is aping free-market libertarian mandarins like Friedrich von Hayek, or Hayek’s libertarian forefathers like William Graham Sumner, the robber baron mandarin and notorious laissez-faire Social Darwinist. As with Neier, William Graham Sumner argued that liberty has an inverse relationship to economic equality; according to Sumner, the more economic equality, the less liberty; whereas the greater the inequality in a society, the more liberty its individuals enjoy. It’s the fundamental equation underlying all libertarian ideology and politics—a robber baron’s ideology at heart.
Neier goes further, explicitly rejecting the Universal Declaration of Human Rights because nine of its 30 articles focus on economic rights as human rights. Neier objects to that, singling out for censure “such economic issues as a right to work; to social security; and to an adequate standard of living.” The human rights article on “a right to work” that Neier dismisses as “authoritarian” is Article 23, and it reads:

“Article 23 (1) Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment. (2) Everyone, without any discrimination, has the right to equal pay for equal work. (3) Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection. (4) Everyone has the right to form and to join trade unions for the protection of his interests.”

It’s interesting that Neier rejects Article 23, the article on labor, which he mislabels as “a right to work”, because back in the 1970s, when Neier was executive director of the ACLU, he supported big business’s “Right To Work” anti-labor laws, against the rest of the left and the ACLU, which at the time still supported labor rights as civil rights. The so-called “Right To Work” laws are grossly misnamed—they’re really laws designed to bust unions by making it even more difficult for them to organize worker power against the overwhelming power of the corporation. It was corporate PR flaks hired to deceive and conceal the real purpose of those laws who came up with the false name “Right To Work” laws. Fred Koch, father of Charles and David Koch and one of the founders of the John Birch Society, got his start in rightwing politics as a leader of the “Right To Work” movement in Kansas in the mid-1950s.

Less than twenty years after Fred Koch fought to destroy labor rights through “Right To Work” laws, the executive director of the ACLU, Aryeh Neier—the same Aryeh Neier who later led Human Rights Watch— colluded with William Buckley to push the ACLU rightward against labor by getting the ACLU to represent big business and “Right To Work” laws, under the guise of “protecting free speech”—the same bullshit pretense always used by lawyers and advocates to help big business crush labor and democracy. This “free speech” pretense is the basis on which the ACLU currently supports the Citizens United decision, which effectively legalized the transformation of America into an oligarchy.
I found an article from 1971 written by William Buckley in which the National Review founder praises Neier for working with him to turn the ACLU against labor: “I invited the ACLU to practice consistency by associating itself with a lawsuit which would prove unpopular among its labor union supporters,” Buckley wrote. “The executive director, Aryeh Neier, has replied, rather straightforwardly, I think. He says, ‘for many years, it has been the ACLU’s policy that the union shop does not, by itself, violate civil liberties. I have felt for some time that we should review this policy and I will use your request to initiate reconsideration,’ going on to say that it will take a while to canvass the directors.”

New Right “libertarian” William Buckley teams up with ACLU’s Neier to destroy labor

A few years later, Buckley boasted of his first early success in turning the ACLU against labor, citing not just his ally Aryeh Neier, but also another well-known name in the so-called “left,” Nat Hentoff. Buckley wrote in 1973:

“Meanwhile, Mr. Nat Hentoff, a left-winger of undiluted loyalty to the first amendment, has urged his very important constituency to side with me and with Evans [M. Stanton Evans, an early libertarian and longtime defender of Joseph McCarthy] and has attempted to persuade the American Civil Liberties Union to file a brief amicus curiae. He has almost singlehandedly persuaded the ACLU to change its historic opinion about union membership. The union shop, the ACLU now says belatedly, ought not to be required for people who are journalists.”

The lawsuit Buckley refers to, Buckley and Evans vs. AFTRA, was backed by the National Right To Work Legal Defense Foundation, the legal arm of the notorious union-busting outfit of the same name. And “leftist” Nat Hentoff. People used to think Hentoff was a leftist—and he seemed like one to de-politicized Baby Boomer imbeciles, who figured the Village Voicelabel on Hentoff’s columns meant whatever he said was leftist. Today, Hentoff is finally in his ideological home at the Cato Institute, the Koch brothers’ anti-labor, pro-oligarchy libertarian think-tank. Despite the Cato Institute’s tireless efforts to undermine democracy and labor, many progressives today consider Cato as “left” or “progressive”—a perversion only possible in today’s mutant left, stripped of its historical relationship to labor and economic justice.
The ACLU under Aryeh Neier also allied with another Buckley in another key decision that hurt labor and democracy and helped the oligarchy: Buckley v Valeo in 1976. Neier was the ACLU head at the time that the ACLU sided with William Buckley’s brother, James Buckley, in a lawsuit to open up the money floodgates into American politics. Most people don’t know Neier’s role in moving the ACLU against labor and against egalitarianism—instead, he did a lot of cheap grandstanding on behalf of Nazi marchers in Skokie. That’s the sort of pseudo-politics and pseudo-bravery that, stripped of economic politics and labor politics, results in the pseudo-left of today, a left absorbed by “identity politics” at the expense of labor, egalitarianism and socio-economic justice.
And that brings me to the ACLU today—the most depressing part of this story. I had an inkling that the ACLU had abandoned labor before my simple exercise check of their website. Mike Elk has shared with me some of his research into this subject. And it’s well known that the ACLU vigorously supported the disastrous Citizens United decision; the ACLU also took $20 million dollars from the Koch brothers, whose libertarian outfits have played a major role in making Citizens United a reality. Supposedly that money was meant to “fight the Patriot Act”—which is odd, considering that the director of the Koch brothers’ Center for Constitutional Studies at Cato and Vice President for Legal Affairs at Cato, Roger Pilon, explicitly supported the Patriot Act from 2002 through 2008, and that the Kochs’ Cato Institute hired John Yoo to serve on their editorial advisory board for the Cato Supreme Court Review. One should be skeptical when it comes to Koch “donations” sold to the public as charity work in the service of human rights.
Maybe there’s no connection there whatsoever between the Kochs’ $20 million gift to the ACLU, and the ACLU’s advocacy for the Kochs’ pet political issue, Citizens United, which transferred greater power from democracy and into the hands of billionaire oligarchs like the Kochs. Maybe it’s all a coincidence, I don’t know. But we do know that there is precedent for the ACLU taking money from corporations, advocating their cause under the guise of “protecting free speech” and hiding the conflict of interest from the public in order to make their defense seem more convincing.
In the late 1980s and early 1990s, the ACLU vigorously defended the interests of the tobacco lobby under the guise of protecting their “first amendment rights”—and they did it for payments in-kind. Leaked tobacco documents in the 1990s exposed the ACLU working out explicit deals with the tobacco industry to take their money in exchange for advocating their interests in public, without disclosing that gross conflict of interest and violation of the public trust. The documents and memos revealed that the hundreds of thousands of dollars paid to the ACLU by the tobacco companies were payments in kind to for the ACLU’s defense of Big Tobacco, a relationship that both parties tried to hide in order to confuse the public into believing that the ACLU’s arguments for tobacco were motivated by purely altruistic constitutional arguments, rather than sleazy under-the-table cash payments. The ACLU is, after all, a trusted institution among progressives—that made them the ideal “Third Party Advocate” in PR terms for the tobacco industry’s interests.

Yessiree, it’s all about protecting our Constitutional liberties!

One of the best accounts of the ACLU’s sleazy relationship with big tobacco comes from former Washington Post investigative reporter Morton Mintz, in his piece, “The ACLU and the Tobacco Companies,” published in Harvard University’s Nieman Reports. Mintz reported how the ACLU laundered the tobacco lobby’s money as supposedly charity money to fight for workplace rights. This abuse of public trust so outraged former ACLU legal director, Melvin Wulf, that he publicly denounced the ACLU’s rationalization as a “sham” — the ACLU worked with tobacco to fight against second-hand smoke laws, the very opposite of “workplace rights”:

“The justification that the money is used to support workplace rights is a sham. There is no constitutional right to pollute the atmosphere and threaten the health of others. The revelations…support the conclusion that the ACLU’s mission is being corrupted by the attraction of easy money from an industry whose ethical values are themselves notoriously corrupt and which is responsible for the death annually of 350,000 to 400,000 persons in the U.S. alone.”

So it should come as no surprise that on the ACLU’s website, on the page marked “Key Issues”— labor does not appear. Not among the 14 categories of ACLU “Key Issues” — which include “HIV/AIDS”, “LGBT Rights”, “Technology and Liberty” and “Women’s Rights”. Not even among the 90 sub-categories of “Key Issues” is there a single mention of “labor rights.”
Everything under the civil liberties sun but labor rights and economic/social equality are named as ACLU “key issues.” Among the 90 sub-categories: “Marijuana Law Reform”, “Flag Desecration”, “LGBT Parenting”, “Medical Care in Prison” and “Mental Care In Prison” [separate sub-categories], “Biological Technologies”, “Internet Privacy”, and “Sex Education.” All of these certainly qualify as key issues to progressives; but the list of categories, 114 in all, without a single mention of labor unions, let alone economic equality or even the very word “equality”—provides a grim and shameful picture of a left stripped of labor, stripped of economic egalitarianism. It is not a left at all: It is, alas, libertarianism. The left was born of labor struggles and the fight against oligarchy and for egalitarianism, economic justice and equality. Now there isn’t even a memory of that.
Stunned by the fact that the ACLU didn’t even include “labor” or “equality” among the 114 “key topics” listed, I called and then wrote to the ACLU asking for comment.
Here is the response I received from Molly Kaplan, the media relations liaison at the American Civil Liberties Union:

Hi Mark,
Labor rights are certainly a key issue for the ACLU; it is folded into our work for free speech, immigrants’ rights and women’s rights. If you look into the pages for those issues, you will find that labor rights have a presence. Let us know if we can be of any further assistance.
Cheers,
Molly

Well, at least someone has labor rights.

Bill Black: Embedded Examiners always married the Natives, but now their Bosses Do Hook Ups

Posted: 28 May 2012 08:59 AM PDT

Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Cross posted from New Economic Perspectives.
Jessica Silver-Greenberg and Ben Protess have written an extraordinarily important column for the New York Times about embedded examiners at JPMorgan.
Embedded examiners’ are federal regulators whose normal work station is a desk at the bank.  We only embed examiners for systemically dangerous institutions (SDIs) – banks so large that they pose a systemic risk to global economy.

Embedded examiners do not work.  They get too close to the bank officers and employees.  In the regulatory ranks we called this “marrying the natives.”  Nothing works with SDIs – they are too big to manage, too big to fail, and too big to regulate.  A conventional bank examination, scaled up to size to fit an SDI the size of JPMorgan would have 500 examiners and take 18 months to “complete.”  (Obviously, when it takes that long to complete an examination it is impossible to “complete” an examination in any meaningful sense – by the time you’ve spent 18 months examining an SDI it can be a radically different bank.)  One cannot conduct an effective conventional bank examination of even a medium-sized bank on a “real time” basis because of the amount of new information pouring in every minute.  Conventional examinations examine a bank’s records and operations “as of” some date (typically the last quarter-end for which reports have been filed).  Embedding examiners is an effort at achieving an “early warning” system.  It has one virtue – it indicates that some senior regulator(s) recognized that they cannot rely on the bank’s own reports to determine whether it is steering toward trouble.
In fairness, twenty-five years ago the proponents of embedding recognize the severity of the “marrying the natives” problem.  They simply viewed embedding as the least bad manner of attempting the impossible – effectively regulating SDIs.  Here is the key passage of the NYT column.

Roughly 40 examiners from the Federal Reserve Bank of New York and 70 staff members from the Office of the Comptroller of the Currency are embedded in the nation’s largest bank. They are typically assigned to the departments undertaking the greatest risks, like the structured products trading desk. Even as the chief investment office swelled in size and made increasingly large bets, regulators did not put any examiners in the unit’s offices in London or New York, according to current and former regulators who spoke only on condition of anonymity.
Senior JPMorgan executives assured the bank’s watchdogs after the financial crisis that the chief investment office, with hundreds of billions in investments, was not taking risks that would be a cause for concern, people briefed on the matter said. Just weeks before the trading losses became public, bank officials also dismissed the worry of a senior New York Fed examiner about the mounting size of the bets, according to current Fed officials.

The authors of the article frame the issue as whether Jamie Dimon’s role as Director of the Federal Reserve Bank of New York poses a conflict of interest and could have led to the regulatory failure to place any examiners in the chief investment office (CIO).  The CIO appears to be the largest de facto hedge fund in the world.  (Note: “hedge fund” is a deliberately misleading term.  Entities called hedge funds typically speculate rather than hedge.  When I call the CIO a “hedge fund” I mean that it largely speculates and disingenuously calls its bets “hedges.”)
I have often expressed my view that Congress answered the policy question about such conflicts of interest with the passage of FIRREA in 1989 – which decided that the analogous conflicts of interest in the structure of the Federal Home Loan Bank System were intolerable and mandated that the governmental functions of examination and supervision be conducted by federal officials.  The regional Federal Reserve banks should be stripped of any involvement in examination and supervision.  That conflict, however, is not my focus in this column.  The point I emphasize is that even at the OCC where that conflict of interest did not exist the “marry the natives” syndrome posed an inherent problem.  Embedded examination did not work even in an era a quarter-century ago when examiners were considerably more willing to say “no” to banks.
I also write to explain why the remainder of the NYT article illustrates how embedded examiners come to see bank propaganda as fact.  I focus on the CIO’s propaganda that it “hedges” and does not gamble.  (The examiners and supervisors also come to believe the SDIs’ proprietary models and to pore over the output of those models rather than the perverse incentive structures that cause the models to err so disastrously and the core, false, assumption that there is some exogenous distribution of financial risk that can be modeled using statistical techniques that require an exogenous distribution.  Example, if we create a criminogenic environment encouraging massive amounts of fraudulent “liar’s” loans then the probability of catastrophic failure becomes 1.0.  Models are not my focus here, though I note that models that assume that bets are “hedges” must produce disaster.)
Let us start with one of the essential attributes of successful bank examination and supervision – professional skepticism.  Our job is to kick the tires.  Our job is to figure out when banks and their officers have perverse incentives, typically arising from compensation.  Our most important task is to detect accounting control fraud – the “weapon of choice” in finance.  We have long known that hedge accounting abuses are a fertile area for fraud.  Fannie and Freddie were the most infamous SDIs to have recently abused hedge accounting – causing the SEC to take action against what it explicitly charged was an effort by Fannie’s senior managers to maximize their bonuses by manipulating supposed hedges.  If JPMorgan’s senior officers were using the CIO to gamble instead of hedge, then they were violation the purpose of the Volcker rule and posing a grave threat to the nation.  Phony hedges designed to hide doubling-down on losing bets are such a common problem that skeptical examiners and supervisors would have made examining the CIO a high priority.  When you’ve married the natives, however, skepticism is the first and primary regulatory casualty.
Here’s how the NYT reporters (inconsistently) describe the CIO.

“Regulators are not typically stationed at divisions like JPMorgan’s chief investment office, which are known as Treasury units. The units hedge risk and invest extra money on hand, and tend to make short-term investments. But JPMorgan’s office, with a portfolio of nearly $400 billion, had become a profit center that made large bets and recorded $5 billion in profit over the three years through 2011.”

It is not clear that the reporters understand that the paragraph contradicts itself.  It states, as if it were an indisputable fact, that the CIO is a “Treasury unit” and such “units hedge risk and invest extra money on hand.”  The next sentence contradicts the first.  It admits that the CIO actually made “large bets” and “recorded $5 billion in profit.”  It gambled on derivatives rather than hedged.  It may have won these bets in the first three years.
Skepticism about the “$5 billion in profit” is essential.  It is easy to abuse investments in financial derivatives in a manner that creates fictional income and hides real losses in the early years.  AIG’s sale of credit default swaps (CDS) protection provide a classic example – book the income now, pay the bonuses now, create no reserves to pay for the massive liability taken on by AIG, and make the officers wealthy while destroying AIG.  By selling CDS protection, AIG was agreeing to guarantee other entities against loss for their investments in “green slime,” e.g., the toxic collateralized debt obligations (CDOs) “backed” largely by endemically fraudulent “liar’s” loans.  It is apparent that the OCC and NY Fed have not examined the CIO sufficiently vigorously to draw any conclusion as to whether the CIO actually made $5 billion in “profit” on its “large bets” in the early years.  The fact that the CIO “recorded” $5 billion in “profit” does suffice to show that they were making bets, not hedges.
Unfortunately, the anonymous regulators quoted by the reporters display even weaker analytics on this point.  JPMorgan has followed an aggressive strategy to keep the regulators on their (round) heels.  When the examiners married Jamie Dimon they married a shrill harpy convinced of his innate superiority over the examiners.  He also has trust issues.  Dimon views examiners who are skeptical and kick the tires as disloyal.  The president of the United States, after Dimon got it very badly wrong, sang his praises.  Obama will stand by his man (donor).  Dimon responds badly to anything less than unreserved praise.  He is a traditional type, he wants the regulator he marries to be a submissive help mate.

“Long before the recent trading blunder, JPMorgan had a pattern of pushing back on regulators, according to more than a dozen current and former regulators interviewed for this article. That resistance increased after Mr. Dimon steered JPMorgan through the financial crisis in better shape than virtually all its rivals.
‘JPMorgan has been screaming bloody murder about not needing regulators hovering, especially in their London office,” said a former examiner embedded at the bank, adding, in reference to Mr. Dimon, “But he was trusted because he had done so well through the turmoil.’”

There are two ways an agency leadership can respond to such a prima donna.  They can be professional but skeptical.  Whenever Dimon “screams bloody murder” they can demonstrate their support for the troops asking the tough questions.  Alternatively, they can send the message that they do not want to upset Dimon.  This will undercut the professional examiners who have resisted marrying the natives.  Over time, the best examiners will tend to leave or wangle transfers to other assignments.  The OCC and New York Fed have historically followed the second management approach.  The reporters cite a specific example involving access to JPMorgan’s capital plan that the examiner believed represented a deliberate effort by JPMorgan management to undercut the examiner.
But here is a vital point – even at their weakest the regulators who marry the natives are better than the natives when it comes to evaluating risk.  The most recent President Bush (in sharp distinction to his father) chose as his regulatory leaders the some of the nation’s leading opponents of regulation.  These regulatory leaders were exceptionally anti-regulatory and pro-industry, but they still were years ahead of most of the industry (and virtually every SDI – including JPMorgan) in warning about liar’s loans, CDOs, and over concentration in commercial real estate.  The NYT authors make the point that the NY Fed examiners want the CIO gamble on a derivative of derivatives unwound “yesterday” while the CIO has continued the gamble.
The tendency of embedded examiners to “marrying the natives” at the SDIs is a serious problem, but the most severe weaknesses in regulation are at the senior levels.  The examiners remain the strongest part of the regulatory chain at the Office of the Comptroller of the Currency (OCC) and the Federal Reserve System.  The reporters provide an excellent example of the this point in their discussion of the OCC’s role at JPMorgan.

“At JPMorgan, when media reports surfaced that the bank was making aggressive bets on credit derivatives, comptroller officials began taking a closer look, people briefed on the matter said. After thumbing through the bank’s own projections for the related risks in early April, the people said, the examiners pushed for more answers but saw no immediate need to change course. The agency notes that it does not bless specific trades.
In a briefing on Capitol Hill last week, two comptroller officials told a room of Congressional staff members that it was ‘common’ and ‘appropriate’ for banks in general to hedge their exposure to various risks, according to people who attended.
‘I know in college they teach you everything is black and white,’ one official said in response to hypothetical questions about creating the perfect hedge.  ‘But it’s not that way in the real world.’”

This brief passage shows why regulators who lack professional skepticism are abject failures.  First, one cannot evaluate adequately a purported hedge by “thumbing through the bank’s own projections for the related risks….”  By the time the OCC was looking, those projections had been shown to have relationship to reality.  Second, of course, the agency does not “bless specific trades.”  No one said it did.  The OCC leaders created a straw man to deflect criticism.  Third, yes it is “common” and “appropriate” to hedge risks, but that is another straw man.  One of the few common elements to the four contradictory major stories that JPMorgan’s press flacks have put out is that their own descriptions of the specifics of the transactions demonstrates that they were bets, not hedges.
Fourth, no, they don’t teach in college that hedging is simple or has no gray areas.  Fifth, the relevant issue has nothing to do with “the perfect hedge.”  A perfect hedge exhibits a negative correlation of -1.0.  JPMorgan engaged in “hedginess” – it made subsequent bets in the same direction as the original bets (positive correlation) – it “doubled down” and lost the gamble.  It delayed informing investors and regulators that it had lost and falsely stated that nothing meaningful had gone wrong.  Dimon then declared his earlier declarations about CIO losses inoperable.
The OCC officials, however, gave Congress the opposite impression that JPMorgan was engaged in “appropriate” “hedging” and should, if anything, be applauded for doing so.  OCC is a bureau within the Treasury Department.  Treasury Secretary Geithner is a virulent opponent of the Volcker rule.  The current draft of the regulation that will eventually implement the Volcker rule was, at the behest of Dimon, crafted by Treasury and the Federal Reserve (another fierce opponent of the Volcker rule) to embrace “hedginess.”  If an SDI claims that a bet on financial derivatives is a hedge (and with portfolios the size of the SDIs one can always claim that “X” is a hedge to “Y”), then Geithner and Bernanke want them to be able to evade the Volcker rule.  This will, of course, destroy the rule.  It was SDIs’ investments in “green slime” financial derivatives that drove much of the ongoing financial crisis and caused eight SDIs to fail.  There is no evidence that the SDIs or their regulators have learned this core lesson.  That is understandable because SDIs inherently have perverse incentives.
As always, I urge that conservatives, libertarians, and progressives join to end the SDIs.  SDIs that are banks receive an explicit federal subsidy through deposit insurance and a far larger implicit subsidy because of the “too big to fail” doctrine.  Congress has never approved this implicit subsidy.  The SDIs are, as they proved during the ongoing crisis, capable of causing global systemic damage.  A nation cannot, therefore, credibly claim that it will not bail out the SDIs’ general creditors.  SDIs are, implicitly, government sponsored enterprises (GSEs) most akin to Fannie and Freddie.
(For those readers who think Fannie and Freddie failed due to government-imposed “affordable housing goals,” please see my articles on their failure.  The short version is that no entity ever required Fannie and Freddie to purchase “liar’s” loans – which did not count towards their affordable housing goals.  Consider why they both, eventually, purchased massive amounts of fraudulent liar’s loans.  The truth is that Fannie and Freddie eventually emulated the (then) investment banks’ massive purchases of liar’s loans and the creation of CDOs for the same reason that the investment banks did – it created guaranteed, massive (albeit fictional) “income” in the near term and made the officers wealthy.  Remember also that Fannie and Freddie did not have any explicit federal guarantee and that their bonds explicitly stated on their face that they were not federally guaranteed.)
The implicit subsidy of FDIC paying the SDIs’ creditors in full even if there is a receivership means that the SDIs can borrow money more cheaply than smaller competitors.  SDIs, therefore, make a mockery of “free markets.”  They are so large that they also make a mockery of democracy.  SDIs are the face of American crony capitalism.
SDIs are not simply dangerous, they are also inefficient.  Shrinking the SDIs to the point where they no longer posed a systemic risk would also increase their efficiency, make them small enough to regulate, and help recover our democracy.
SDIs that function as banks pose intolerable risks to the global economy.  SDIs that function as (thinly disguised) hedge funds should be far beyond the pale.  Conservative and libertarian philosophy rightly condemn providing enormous federal subsidies to a private entity whose senior officers claim any wins and socialize any severe losses.