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Posts Tagged ‘Designed to Fail

Banks Bailed Out By American Taxpayers- Paying Us Back By Shorting Our States and Cities

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by Washington’s Blog Global Research, April 29, 2010

Americans bailed out the giant banks. So how do the too big to fails re-pay the American taxpayers?

By betting that American states and cities will fail.

As the Wall Street Journal notes:

As U.S. cities and towns wrestle with financial problems, investors are finding a new way to profit on their misery: by buying derivatives that essentially bet municipalities will default.

These so-called credit default swaps are basically insurance contracts that have long been available to protect holders of corporate bonds against default. They became available a few years ago for municipal debt, allowing investors to short sell—or bet against—countless cities, towns and bridges, and more than a dozen states, including California, Michigan and New York.

The derivatives are still thinly traded, but their existence has the potential to make investors skittish.

Commenting on the story, Huffington Post points out:

Offered by banks like JP Morgan, Bank of America, and Citigroup, the so-called municipal credit default swaps can be used by investors to bet that insurance contracts protecting holders of municipal bonds will default.

Some states say the derivatives not only scare away potential buyers of municipal bonds by creating a perception of risk, but ultimately drive up states’ borrowing costs. Others contend that the instruments are traded too thinly to affect municipal bond markets or a state’s credit rating.

The California treasurer is just one of a number of state treasurers that have launched a probe into the sale of these derivatives and the sale of municipal bonds by big Wall Street firms that might reveal “speculative abuse of CDS in the muni market,” says one regulator.

Of course, if states or cities go bust, Uncle Sugar will need to bail them out.

So by letting the bailed out gamblers on Wall Street run amok, Summers, Geithner, Bernanke and the gang are increasing the odds that the states and cities of America – you know, the actual constituent parts which make up the United States – will need to be bailed out.

Of course, bailing out the states and cities in the first place would have given more bang for the buck than throwing money at the giant banks, especially given that the Federal Reserve has intentionally created incentives to ensure that banks will not loan out money back into the economy.

Simon Johnson: Fraud at the heart of Wall Street

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Our Pecora Moment

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By Simon Johnson

We have waited long and patiently for our Ferdinand Pecora moment – a modern equivalent of the episode when a tough prosecutor from New York seized the imagination of the country in the early 1930s and, over a series of congressional hearings: laid bare the wrong-doings of Wall Street in simple and vivid terms that everyone could understand, and created the groundswell of public support necessary for comprehensive reregulation.  On Friday, that moment finally arrived.

There is fraud at the heart of Wall Street, according to the Securities and Exchange Commission.  Pecora took on National City Bank and J.P. Morgan (the younger); these were the supposedly untouchable titans of their day.  The SEC is taking on Goldman Sachs; no firm is more powerful.

Pecora exposed the ways in which leading banks mistreated their customers – typically, retail investors.  The SEC alleges, with credible detail, that Goldman essentially set up some trusting clients and deliberately misled them – to the tune of effectively transferring $1 billion from them to a particular unscrupulous investor.

Pecora had the drama of the congressional hearing room and used his skills as an interrogator to batter the bastions of Wall Street, day-after-day, with gruesome and convincing detail.  We don’t know where and when, but the SEC action points in one direction only: Lloyd Blankfein (CEO of Goldman) in the witness box, while John Paulson (unindicted co-conspirator) waits in the on-deck circle.

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Spineless, Timid, Tepid and Wimpy

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The Obama administration stolidly mans their shovels to dig a deeper hole. Never mind the increasingly disparaging comments in print (can you imagine what is being said privately?) about how quickly they collapse when asked to support people-first policies they supposedly favor.

Jim Hightower writes:

The Obama-ites seem incapable of firm stands. They excite us by boldly addressing our economic woes. But when it comes time to follow through — it’s droopsville….

Obama himself has titillated the hopes of working families by proposing a $266 billion national emergency program to put America to work.

Strong stuff — let’s get it on!

Sure enough, after a lengthy romancing of their Republican colleagues (who are devout believers in an abstinence-only job-creation policy), the Democrats finally made their move last week. With the support of five GOP senators, the “jobs, jobs, jobs” bill passed in both houses of Congress.

But … what a letdown. To win those five Republican senators, Democratic leaders shriveled their job investment program from a robust $266 billion to a frustratingly puny $15 billion. Even such phony Casanovas as Sen. Chuck Schumer had to confess that the “package is not a panacea; it’s not going to solve everything.”

Everything? Chuck, admit your impotence. At most, this bill might stimulate the creation of 250,000 new jobs — a bit short of the 11 million that America needs just to get back to where were in 2007, much less the need to create an economic path to lead us into a bold future of new, sustainable, middle-class job creation.

George F. Will opines:

Barack Obama has refuted critics who call him a radical. He has shown himself to be a timid progressive.

His timidity was displayed when he flinched from fighting for the boldness the nation needs — a transition from the irrationality of employer-provided health insurance. His progressivism is an attitude of genteel regret about the persistence of politics.

“Tepid” is one of the most common words used to describe Obama. Just use a search engine- I started to count the entries and gave up.

Digby adds:

According to Sam Stein members the Treasury Department, including Tim Geithner himself, met with a group of progressive bloggers yesterday to tell them what a good job the administration’s done all things considered, but that now they need to get the voters all charged up to help them pass a tepid financial reform bill. This is part of a larger public relations offensive to rehabilitate Geithner and the Obama economic policies.

I doubt any American President has ever offered so many policies designed to fail or made such a concerted effort to be a one-termer.  I’d sure like to know why.

Written by laudyms

March 11, 2010 at 10:33 am

The Mystique of “Free-Market Guy” Obama

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judas goat

Obama has continued most of Bush’s anti-democratic policies and flubbed any attempts at “change.”  Evidently his primary purpose is to convince the American people that Corporate Rule is unassailable.  It’s not the first time Democrats have pursued popular policies in ways that are Designed to Fail.

By Jeff Cohen   09/24/09 Information Clearing House

“……Some activists still see Obama as a brilliant political superhero who — although maddeningly slow to fight back against his opponents — always manages to win in the end … like Muhammad Ali defeating George Foreman.

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