Sunday, March 22, 2009

Working families struggle to make ends meet

Working families struggle to make ends meet

By Mike Bryan

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As thousands of jobs are shed on a daily basis and consumer credit tightens, the economic crisis is driving working families and individuals to make difficult decisions on how to spend their dwindling resources—many with serious ramifications for their current and future well-being.

Because real wages have stagnated since the early 1970s, families have attempted in recent years to make ends meet by working longer hours, taking on second jobs, or by adding more family members to the labor force. Such options have now become few and far between as more and more workers search for work and many are forced to work reduced hours.

The most recent Federal Reserve flow of funds report indicates that at $13.9 trillion, American household debt more than doubled over the last decade. Or, as Time magazine put it, "Household debt in the US—the money we owe as individuals—zoomed to more than 130% of income in 2007, up from about 60% in 1980."

However, with the collapse of the housing market has come a drying up of credit. Decreased home values mean decreased home equity that can be realized either through sale or borrowing. Some banks are even offering customers hundreds of dollars to cancel their unused home equity lines of credit. Likewise, credit card companies are decreasing credit limits, raising rates, canceling cards, or offering small financial incentives to cancel them.

Reuters quoted banking analyst Meredith Whitney, who warned that "credit cards are the next credit crunch." Available lines of credit were reduced by nearly $500 billion in the fourth quarter of 2008 alone, she said, estimating that over $2 trillion of credit card lines will be cut in 2009.

In response to these pressures, people—and businesses—have cut back on spending. According to a Commerce Department report released February 27, consumer spending—which accounts for about two-thirds of the US economy—decreased in the fourth quarter of 2008 at a 4.3 percent pace, the most in 28 years.

Spending on health care is one area where people are cutting back, often endangering their health, their lives. According to the February 25 news release for a Kaiser Family Foundation survey, in the past 12 months more than half (53 percent) of American households say they have cut back on health care due to cost concerns.

The survey showed: "The most common actions reported are relying on home remedies and over-the-counter drugs rather than visiting a doctor (35%) or skipping dental care (34%). Roughly one in four report putting off health care they needed (27%), one in five say they have not filled a prescription (21%), and one in six (15%) say they cut pills in half or skipped doses to make their prescription last longer."

When medical care cannot be postponed, however, the consequences of health care outlays can be devastating. Nineteen percent of people reported "serious financial problems recently due to family medical bills." Spending for health care means other bills are put off, and families must cut back on basic necessities like food, housing and utilities. "Specifically, 13 percent say they have used up all or most of their savings trying to pay off high medical bills in the past 12 months," according to the Kaiser study.

A recent Bank of America Retirement Savings Survey also found that economic conditions have caused 18 percent of respondents to withdraw money from their qualified retirement accounts prematurely. In spite of having to pay income tax and, in most cases, a 10 percent early withdrawal penalty on this money, 25 percent of respondents withdrew the funds because they needed it to make credit card payments, 22 percent needed it to make mortgage payments, and 22 percent because they had lost a job.

Reports indicate pawnshop business is booming in the US, Canada and Britain. In addition to an influx of new customers, many of those who used to shop in pawnshops are now going there to sell items to get cash to pay bills.

Reports also indicate a marked increase in the number of people donating their blood, semen, hair, and eggs. Donations of blood can earn $20 to $35, semen can earn up to about $200, a yard of hair up to about $2,500, and eggs up to $10,000. "The Center for Egg Options in Illinois has seen a 40 percent increase in egg donor inquiries since the start of 2008," according to Reuters.

A recent survey by Feeding America, formerly America's Second Harvest, finds a 30 percent average increase in people seeking help at food banks across the nation, twice the increase seen six months ago. More than 70 percent of food banks are unable to meet the demand and are being forced to cut back on the food they provide to soup kitchens, food pantries and emergency shelters.

After a request for $300 million in emergency assistance was left out of the recent economic recovery package, Vicki Escarra, president and CEO of Feeding America, said, "It is tragic that this legislation ignores the emergency food needs of millions of people affected by the faltering economy."

"Many of the people we see are recently unemployed and do not currently qualify for food stamps, or are waiting for benefits to be approved," she said. "Our food banks are seeing unprecedented numbers of people coming to food pantries across the country, and their shelves are becoming emptier by the day.

Escarra added, "We cannot continue to feed millions of additional men, women and children who are turning to us, often for the first time, without more support from the federal government. Americans are going hungry, and we are in a crisis."

More and more people are also looking to payday lending companies for needed cash. In some states, these legalized loan-shark operations can charge over 400 percent interest annually on loans. While several states have passed laws putting a cap on the interest rates these companies can charge at far lower levels, 35 states have not.

Even in those states where interest rates have been capped, payday lenders are finding ways around usury laws. Ohioans voted in the last election to cap payday lending rates at 28 percent, to limit the amount a person can borrow from such firms to $500, and to allow a consumer to take out no more than four loans per year. To get around the law, when payday lenders give a customer a $500 check, they then charge the customer $75 to cash it.

Obama maneuvers to protect Wall Street bonuses

Obama maneuvers to protect Wall Street bonuses

By Barry Grey

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Following the passage Thursday of a bill by the House of Representatives that would tax some bonuses at a handful of companies that have received government bailout money, the Obama administration is seeking to discourage passage of a similar bill by the Senate, even as Obama feigns indignation over $165 million in bonuses awarded by the bailed-out insurance giant American International Group (AIG).

Obama is attempting to navigate between placating public anger over AIG and similar outrages by Wall Street firms that have received hundreds of billions of dollars in taxpayer funds and satisfying the demands of the financial elite, which will brook no government interference in its drive for self-enrichment.

Responding to an outpouring of public anger over the revelation that AIG, the recipient of $173 billion in government loans and cash, last week granted large bonuses, some in the millions of dollars, to executives and traders in its financial products division, the House voted 328 to 93 to impose a 90 percent surtax on bonuses given to employees with a family income of $250,000. The bill covers only firms that have received $5 billion or more in government handouts under the $700 billion Troubled Asset Relief Program (TARP) and other financial rescue programs.

The financial products division was the unit of the insurance company that sold trillions of dollars worth of credit default swaps to banks, hedge funds and other financial companies to insure their investments in collateralized debt obligations and other exotic financial instruments backed by subprime mortgages. It played a major role in erecting the financial house of cards that has come crashing down, effectively bankrupting AIG and much of the US and international financial system and plunging the world economy into the deepest recession since the 1930s.

All but six House Democrats voted for the bill and nearly half of House Republicans joined in support, defying House Minority Leader John Boehner, who opposed the measure. The bill is retroactive, covering all bonuses at affected companies granted after January 1, 2009. It thus includes the AIG bonuses that have become a focal point for public anger over the entire government bailout of Wall Street.

The House bill, in fact, covers only 13 of the more than 500 companies that have received some $250 billion in cash infusions from the US Treasury. In addition to AIG, the list includes Citigroup, JPMorgan Chase, Wells Fargo, Bank of America, Goldman Sachs, Morgan Stanley, PNC Financial Services Group, US Bancorp, General Motors, General Motors Acceptance Corporation and the mortgage finance giants Fannie Mae and Freddie Mac.

The Senate version, which could be voted on as early as next week, covers a wider range of firms—those receiving $100 million or more in government cash. It would impose a 70 percent surtax on most bonuses at these companies, half to be paid by the individual recipients and half by the firms.

The aim of the House and Senate measures, far from fundamentally reforming the financial system or requisitioning the vast fortunes of Wall Street speculators, is to mitigate public anger in order to pave the way for passage of a new round of bank bailouts being prepared by the Obama administration. This was signaled by Democratic Congressman Artur Davis of Alabama, who said, "We're eroding confidence in the way taxpayer dollars are managed and spent. And the cost of that? It's going to make it harder than ever for us to do the things that must be done to get this economy going moving forward."

Similarly, in the Senate, Democrat Max Baucus, the chairman of the Senate Finance Committee, indicated at a hearing Wednesday that the bill he coauthored was aimed at pressuring AIG to voluntarily revoke the bonuses. He told the CEO of AIG, "We're going to introduce the bill. I think it's sufficient leverage to get these paid back."

As the Wall Street Journal reported Friday, "Still, the feeling at one major bank Thursday was that the legislation would get significantly watered down, making it applicable only to AIG, or, perhaps, firms that have received more government assistance than just the initial handouts made under the TARP program..."

Nevertheless, the measures have ignited a storm of indignant protest from Wall Street and threats to refuse to participate in government financial rescue programs. Amid charges of "McCarthyism" and denunciations of the proposals as "vengeance," leading banking figures are threatening, in effect, to allow the financial system to collapse rather than accept even the most modest limits on executive pay.

Already, more than 200 banks have withdrawn their applications to receive government cash in order to avoid government limits on executive pay and restrictions on their financial operations.

The vast fortunes piled up by Wall Street executives have played a major role in the destabilization of the US and world economy. Over the past three decades, trillions have been drained from society's resources and the wealth created by the working class to sustain the lavish lifestyles of the modern robber barons. Just last year, as they were recording record losses, Wall Street firms paid more than $18.4 billion in bonuses in New York City.

The Washington Post summed up the attitude of the financial elite to the House bill in its lead editorial Friday, headlined "Washington Gone Wild." The newspaper wrote, "Yesterday, the House had the feel of a mob scene..." It went on to warn that "The effective confiscation of legally earned and contractually promised payments may well be unconstitutional..."

Needless to say, the leading newspaper of the nation's capital has expressed no similar qualms about government diktats requiring the ripping up of union contracts at auto companies and the slashing of workers' wages and benefits.

The editorial echoed the assertions of bankers that such limits on corporate compensation would "drive away the best talent" at AIG and other firms. Precisely the nature of the "talent" of executives who masterminded the collapse of the company and much of the financial system, the newspaper did not explain.

It then got to its central point: "The Obama administration reportedly intends in the next week or two to announce the details of a "private-public partnership" to buy troubled assets from ailing banks. The participation of private hedge funds, investment banks and other firms will be key to the plan's success..."

This refers to the administration's plan to entice speculators into buying bad loans from the banks by using taxpayer money to give them low-cost loans and guarantee the vast bulk of any potential losses. This is a scheme to guarantee returns of 20 percent or more to big investment firms and provide a new source of fees and profits to the banks, while offloading the banks' worthless assets onto the public.

Following the House vote, Obama issued a statement designed to appeal to popular anger while making no commitment to support the measure. He said the vote "rightly reflects the outrage that so many feel over the lavish bonuses that AIG provided its employees at the expense of the taxpayers who have kept this failed company afloat." He continued, "I look forward to receiving a final product that will serve as a strong signal to the executives who run these firms that such compensation will not be tolerated."

Appearing that evening on the "Tonight Show with Jay Leno," Obama responded to a question from the comedian on the House bill by further distancing himself from it. "I understand Congress' frustrations," he said. "They're responding to, I think, everybody's anger. But I think the best way to handle this is to make sure that you close the door before the horse gets out of the barn."

This statement sums up the hypocrisy of the administration as well as Congress. Obama, both before and after assuming office, intervened to prevent the door from being closed to AIG and other financial firms—including Merrill Lynch, Fannie Mae and Freddie Mac—that used taxpayer money to award lavish bonuses.

During the presidential campaign, candidate Obama joined with the Bush administration in opposing any serious executive pay restrictions in the original TARP bailout legislation. As president elect, he lobbied to block attempts to attach meaningful compensation limits in the congressional authorization for the second $350 billion installment of TARP funds. And his administration intervened in the final stages of congressional action on his economic stimulus bill to sanction bonuses at AIG and other firms receiving government cash by exempting bonuses agreed to before the February 11 enactment of the stimulus legislation from limits on executive compensation.

Subsequently in the Leno interview, Obama responded to a question as to whether some people should go to jail for the economic debacle by offering a virtual blanket amnesty to Wall Street. "Most of what got us into trouble was perfectly legal," he said. He sought to discredit public anger as "finger-pointing," declaring that he was seeking to "break a pattern in Washington where everybody's always looking for someone to blame."

The real attitude of the Obama administration was spelled out by the Wall Street Journal, which reported Friday that "privately, there's concern within the Obama administration that the angry political atmosphere now surrounding the federal bailout program will scare away private participants the government needs to help bolster the financial system."

The newspaper added that administration officials "are looking for ways to blunt the bill's impact if it becomes law..."

On the same day that Obama vouched for the lawfulness of the American financial aristocracy, the House Ways and Means Committee's oversight subcommittee revealed that thirteen of the largest recipients of government bailout funds failed to pay more than $220 million in federal taxes, including two firms—which the committee refused to name—that owe $113 million and $102 million.

Launching Lifeboats Before the Ship Sinks

Launching Lifeboats Before the Ship Sinks

By Paul Craig Roberts

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On March 19 the New York Times reported: “The Fed said it would purchase an additional $750 billion worth of government-guaranteed mortgage-backed securities, on top of the $500 billion that it is currently in the process of buying. In addition, the Fed said it would buy up to $300 billion worth of longer-term Treasury securities over the next six months.”

The Federal Reserve says that its purchase of $1 trillion in existing bonds is part of its plan to revive the economy. Another way to view the Fed’s announcement is to see it as a preemptive rescue. Is the Fed rescuing banks from their bond portfolios prior to the destruction of bond prices by inflation?

The answer to this question probably lies in the answer to the unanswered question of how the unprecedented sizes of the FY 2009 and FY 2010 federal budget deficits will be financed. Neither the US savings rate nor the trade surpluses of our major foreign lenders are sufficient.

I know of only two ways of financing the looming monster deficits. One, courtesy of Pam Martens, is that the federal deficits could be financed by further flight from equities and other investments.

This is a possibility. If the mortgage-back security problem is real and not contrived, the next shock should arise from commercial real estate. Stores are closing in shopping centers, and vacancies are rising in office buildings. Without rents, the mortgages can’t be paid.

Another scare and another big drop in the stock market will set off a second “flight to quality” and finance the budget deficits.

The other way is to print money. John Williams (shadowstats.com) thinks that the budget deficits will be financed by monetizing debt. The Federal Reserve will buy most of the new bonds and create demand deposits for the Treasury. In effect, the money supply will grow by the amount of Fed purchases of new Treasury debt. Printing money to finance the government’s budget normally leads to high inflation and high interest rates.

The initial impact of the announcement of the Fed’s plan to purchase existing debt was to drive up the bond prices. However, if the reserves poured into the banking system by the bond purchases result in new money growth, and if the Fed purchases the new debt issues to finance the governments’ budget deficits, the outlook for bond prices and the dollar becomes poor.

It will be interesting to see how the currency markets view the problem. The New York Times reported that “the dollar plunged about 3 percent against other major currencies” in response to the Fed’s announcement.

If the exchange value of the dollar works its way down, it will complicate the financing of the trade deficit and impact the decisions of foreigners who hold large stocks of US dollar debt. The premier of China recently expressed his concern about the safety of his country’s large investment in US dollar debt.

If the US government is forced to print money to cover the high costs of its wars and bailouts, things could fall apart very quickly.

A Forgotten Humanitarian Disaster

A Forgotten Humanitarian Disaster

By Lieven De Cauter

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The sixth anniversary of the invasion of Iraq is a sad occasion for the balance sheet: during six years of occupation 1.2 million citizens were killed, 2,000 doctors killed, and 5,500 academics and intellectuals assassinated or imprisoned. There are 4.7 million refugees: 2.7 million inside the country and two million have fled to neighbouring countries, among which are 20,000 medical doctors. According to the Red Cross, Iraq is now a country of widows and orphans: two million widows as a consequence of war, embargo, war again and occupation, and five million orphans, many of whom are homeless (estimated at 500,000). Almost a third of Iraq’s children suffer from malnutrition. Some 70 per cent of Iraqi girls no longer go to school. Medical services, not so long ago the best in the region, have totally collapsed: 75 per cent of medical staff have left their jobs, half of them have fled the country, and after six years of “reconstruction” health services in Iraq still do not meet minimum standards.

Because of the use of depleted uranium in ammunition by the occupation, the number of cancer cases and miscarriages has drastically increased. According to a recent Oxfam report, the situation of women is most worrisome. The study states that in spite of optimistic bulletins in the press, the situation of women keeps deteriorating. The most elementary supplies are still not available. Access to drinkable water is for large parts of the population a problem and electricity is functioning only three to six hours a day, and this in a state that was once a nation of engineers. More than four in 10 Iraqis live under the poverty threshold and unemployment is immense (28.1 per cent of the active population). Besides 26 official prisons, there a some 600 secret prisons. According to the Iraqi Union of Political Prisoners, over 400,000 Iraqis have suffered detention since 2003, among which 6,500 minors and 10,000 women. Torture is practiced on a large scale, and some 87 per cent of detainees remain uncharged. Corruption is immense: according to Transparency International, Iraq, after Somalia and Myanmar, is the most corrupt country in the world. The American Foreign Affairs journal calls Iraq “a failed state”. This is symbolised by the fact that Iraq, a state that has the third largest oil reserves in the world, must import refined oil on a massive scale. Authorities are on the verge of giving oil concessions for 25 years to international (also European) oil companies, though they have no mandate or legal authority to do so. Instead of being paid reparations for the enormous destruction wrought on the infrastructure of the country, entailing billions in oil revenues lost, Iraq is again in line to be robbed. There is large scale ethnic cleansing going on against the Turkmen, the Christians, the Assyrians and the Shebak. Kirkuk is being “Kurdicised” by massive immigration and illegal settlements (of Israeli inspiration) and its history falsified.

This data, referenced in numerous reports, was presented during an information session in the European Parliament organised by the BRussells Tribunal on 18 March by a panel of Iraqi specialists. On 19 March, there was a session in the Belgian Parliament where a national representative after the statement of Dr Omar Al-Kubaissi, a renowned Iraqi cardiologist and expert on health, frankly admitted that he had no idea of the scale of the humanitarian disaster. Who can blame him? In the European press we hear little or nothing concerning this humanitarian disaster. In the newspapers there is talk of elections, of an occasional bomb attack, of the political process, of the positive results of the “surge”, etc, but concerning the suffering the Iraqi people … next to nothing. We have fallen asleep and we console ourselves: Obama plans the retreat American troops; therefore the issue of Iraq is off the agenda. The truth is that we want to forget this humanitarian disaster, because the West is responsible. Of course, in the first and last instance the administrations of Bush and Blair, but also the Netherlands, Denmark, Hungary, Poland and Italy were part of the coalition and hence accessory while Antwerp was a vital transit port for the invasion. Therefore also Europe bears a heavy responsibility. How is it possible that we can dissimulate the impact of the war, which initially stirred world public opinion, in spite of the flow of shocking reports? “Darfur” sounds a bell meanwhile (and correctly so) as a sort of African holocaust, but the crimes against the humanity of a near “genocidal” scale in Iraq are swept under the carpet. If the press does not do its job, how can public opinion be touched? Even activists and well meaning politicians are not on the level. This type of disinformation, and the indifference that comes with it, one could call a form of negationism, or at least a type of immoral ignorance. Wir haben es nicht gewusst, we will say. But the people of the Arab region will not forgive us. Let this be clear.

U.S. unemployment rate likely around 9.5 percent: think tank

U.S. unemployment rate likely around 9.5 percent: think tank

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The U.S. unemployment rate was probably around 9.5 percent, comparable to the jobless rate in 1982 if adjustments were made to factor in demographic changes and undercounting, a think tank said on Thursday.

The Center for Economic and Policy Research said the current recession would be the worst since the post-war period, beating the 1982 downturn, which lasted 16 months.

"On an apples-to-apples basis the unemployment rate today goes from about 8.1 percent to about 9.5 percent, which is just 0.2 percentage point lower than the 9.7 percent average for 1982," said John Schmitt, a senior economist at the CEPR.

"That was the highest unemployment rate we had in the post-war period. We are almost where we were at the worst point of the worst recession of the post-war period."

Schmitt said relative to 1982, the official jobless rate understated the true slack in the economy. He pointed to changes in the composition of the labor force and the fact that the monthly household survey used to determine the jobless rate missed a larger portion of the population.

"The typical worker in the economy today is 42 years old and the typical worker in 1982 was only 35. That has a very significant effect on the unemployment rate because younger people have a higher unemployment rate than older workers," he said.

The current unemployment environment was affecting older workers more than in the past, said Schmitt.

"I don't think there is any economist who thinks things aren't going to get worse before they get better," he said. "Our fears that this will be the worst recession of the post-war period are almost certainly not only going to come true, but they are in the process of becoming true right now."

Fed to Buy Treasurys is Not a Good Sign

Fed to Buy Treasurys is Not a Good Sign


Rapid Declines in Manufacturing Spread Global Anxiety

Rapid Declines in Manufacturing Spread Global Anxiety

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Since it was founded by his great-grandfather in 1880, Carl Martin Welcker’s company in Cologne, Germany, has mirrored the fortunes of manufacturing, not just in Europe but around the world.

That is still true today. In a pattern familiar to industrial businesses in Europe, Asia and the United States, Mr. Welcker says his company, Schütte, which makes the machines that churn out 80 percent of the world’s spark plugs, is facing “a tragedy.”

Orders are down 50 percent from a year ago, and Mr. Welcker is cutting costs and contemplating layoffs to prevent Schütte from falling into the red.

That manufacturing is in decline is hardly surprising, but the depth and speed of the plunge are striking and, most worrisome for economists, a self-reinforcing trend not unlike the cascading bust that led to the Great Depression.

In Europe, for example, where manufacturing accounts for nearly a fifth of gross domestic product, industrial production is down 12 percent from a year ago. In Brazil, it has fallen 15 percent; in Taiwan, a staggering 43 percent.

Even in China, which has become the workshop of the world, production growth has slowed, with exports falling more than 25 percent and millions of factory workers being laid off.

In the United States, until recently a relative bright spot for manufacturing despite the steady erosion of blue-collar jobs, industrial output fell 11 percent in February from a year ago, according to statistics released Monday by the Federal Reserve.

“Manufacturing has fallen off the cliff, and it’s certainly the biggest decline since the Second World War,” said Dirk Schumacher, senior European economist with Goldman Sachs in Frankfurt.

The pattern of manufacturing and trade ominously recalls how the financial crisis of 1929 grew into the Great Depression: tightening credit and consumer fear reduced demand for manufactured goods in one country after another, creating a downward spiral that reduced global trade.

“Plunging manufacturing suggests that as bad as things were in the fourth quarter, they are at least as bad now,” said Robert J. Barbera, chief economist at ITG, a New York research and trading business. “This is a classic adverse feedback loop. It won’t quickly correct itself.”

That means more workers can expect to lose their jobs around the world in coming months as manufacturers continue to cut production, especially as global trade contracts.

In fact, trade is shrinking even faster than production. Germany’s exports down are 20 percent from a year ago, Japan’s have plunged 46 percent, and in the United States, exports fell at an annualized rate of 23.6 percent in the fourth quarter of 2008.

Mr. Welcker says he has never seen anything like it. For parallels, he has to hark back to the Great Depression and World War II, when Schütte’s factory was destroyed.

After focusing on Germany and Europe in the decades after the war, Schütte thrived recently as globalization opened new markets in Eastern Europe and Asia. In the last five years, Schütte’s sales soared to about 100 million euros ($131 million) from 58 million.

The sudden reversal in global manufacturing suggests that Americans should not expect economic relief from abroad soon, despite a slightly more optimistic mood on Wall Street lately and President Obama’s call for more stimulus spending by foreign governments.

While manufacturing equals about 14 percent of gross domestic product in the United States, it totals 18 percent worldwide, and accounts for 33 percent of G.D.P. in China, according to the World Bank.

That means that China, Brazil, India and other fast-growing emerging market countries that have escaped the worst of the fallout from the credit crisis will increasingly suffer, dragging down demand in more advanced Western economies even as government-led stimulus packages kick in.

The damping effect works both ways.

Despite the misperception that America no longer makes anything, falling demand for goods made in the United States, including jet engines, locomotives, medical equipment, pharmaceuticals and some high-tech products, will hurt American growth prospects.

“Manufacturing makes up about two-thirds of U.S. exports, and contributed more to G.D.P. growth over the last 20 years than any other sector of the U.S. economy,” said David Huether, chief economist for the National Association of Manufacturers in Washington. “Our share of global manufacturing output has remained steady at 20 to 23 percent over the past decade.”

Elsewhere, even relatively healthy industrial companies like Toyota are also slashing production, which contributed to Japan’s huge export decline.

Toyota halted work at its 12 auto plants in Japan beyond its normal break in February and March. It also cut its production forecast for the year ending March 31 by 20 percent, to slightly more than seven million vehicles, and has warned that it will post a net loss of 350 billion yen ($3.6 billion), its first in decades.

In Europe, new figures for January manufacturing are due Friday, and they are expected to show that the decline is still worsening.

Although the problems of manufacturers supplying the auto industry and other so-called big iron manufacturers of products like locomotives, jet engines and power turbines have gotten the most attention, makers of a variety of other products, including handicrafts, clothes and jewelry, are suffering too.

India’s manufacturing sector, which accounts for about 16 percent of G.D.P., recently recorded its first quarterly production decline in more than a decade.

Since last April, handicraft exports have fallen by 55 percent to $1.35 billion, and textile makers estimate they have slashed half a million jobs. Banks, meanwhile, are restructuring loans for diamond makers and polishers.

And despite tax cuts and a $64 million stimulus package announced in February, Indian textile makers are pushing for more government help.

“We’re competing with countries like Bangladesh, where wages are lower,” said Rakesh Vaid, the chairman of Usha Fabs, a Delhi textile manufacturer. “We’re competing with China where the currency is well managed, and Vietnam where the industry is getting strong support from the government.”

At Schütte, which has 550 workers and is emblematic of Germany’s bedrock Mittelstand sector of family-run businesses, perilous times are part of the company’s history.

Mr. Welcker recalls family tales of trucks filled with cash to pay workers during the hyperinflation of the Weimar era, and how after G.I.’s crossed the Rhine in 1945 near where his factory stands today, “not one stone stood atop another.”

Today, he is thankful the situation is nothing like those days. “But the speed of the decline in orders,” he said, “is the worst we’ve ever seen.”

Our Shame by Cindy Sheehan

Our Shame

By Cindy Sheehan

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I remember sitting in my living room, six years ago, watching the "Leader of the Free World" announcing that the United States military had just embarked in "shock and awe" against the country of Iraq.


The images made me physically ill, as they had 12 years before when the criminal's criminal father was bombarding Iraq.

I was also personally sick with fear as my family had "skin in the game," our son/brother, Casey. On that night, Casey's life clock starting ticking down: He had exactly one year and 15 days to live from "shocking and awful."

Six years and over a million lives later, our military is still shamefully in Iraq. Our "Peace President" has created no positive change there and is in fact extending the length of the deployment of "combat troops." The country has been ethnically cleansed. Violence is down because everyone there is either dead, displaced or too poor, wounded or frightened to move let alone continue fighting. Violence is down, but not out, and you can bet there will be a strong US military presence in Iraq until every last drop of oil has fallen into the hands of foreign oil companies.

What about Afghanistan? When will the "peace movement" begin to protest the anniversary (Oct. 7, 2001) of the invasion of that war-torn country? When will we begin saying "illegal and immoral" in connection with Afghanistan and start mourning the dead there? Maybe when US casualties begin to ratchet up as Obama surges US troop presence there? Obama is sending incursions farther and farther into Pakistan every day. From one "dumb war" to another "dumb war," and the cycle of death will never end for we in the Robbed Class or the poor innocents of that region.

The economic collapse is a very worrisome and immediate problem to so many of us, but we need to remember that the Military Industrial Robber Class Complex is the reason we are in this current crisis and the economic costs of the occupations cannot and must not be separated from the human cost. Whose life clock is ticking away today? How can we allow yet another year to pass?

Every year I say that this will be our last…I don't believe that anymore. I believe that a very few of us will be demonstrating against these "wars" for years and every year that goes by, fewer of us will be out.

It is our shame that we as a nation complacently sit by and allow the audacity of the atrocities of empire to continue in our names.

Our demands must be the same with the Obama regime as it was with the Bush regime: Troops home completely and immediately. Leave cowardice and compromise to the politicians: we in the movement must never compromise or sell out the values of peace with justice. Or if we have already sold-out, we must buy-back...we need everyone!

Many have already given up or have been co-opted by the Democratic Party or the false specter of "hope." Most have never even protested other than bitching on blogs or yelling at the TV when Bush or Cheney came on spewing their lies (Cheney is still at it).

Some will never give up. Here's to you! I honor your commitment to peace, no matter who is the current warmonger occupying the Evil Office (oops, I sorta meant "Oval Office")

Hasta la victoria, siempre!

We're on The Verge Of A Major Crisis : Ron Paul

We're on The Verge Of A Major Crisis

Ron Paul discusses the AIG bonus controversy

Two Options To Save US Economy: Declare Default or Trigger War

USA has two options to save its economy: declare default or trigger off war

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The United States is the largest borrower in the world. The US national debt has already exceeded the level of 11 trillion dollars as of the beginning of 2009 and continues to grow like an avalanche. Experts say that the USA has only two ways to solve the problem: to either declare default or trigger off a war.

According to experts’ estimates, the probability of default on US treasury bonds is very high at the moment. The rumors are not new at all. Moreover, experts say that the USA has already started to work on an opportunity to refuse from the dollar in order to avoid debt payments.

Dmitry Abzalov, an expert with the Center for Russia ’s Political Conjuncture, said that governments currently take on the debts of corporations. “The corporate debts crisis thus becomes the crisis of governmental debts. The US debt in the beginning of 2009 amounted to $10.6 trillion. Taking into consideration the current deficit budget of the United States , as well as the prospects for the deficit of the budget during the current year, it becomes clear that the US Treasury bond market is based on no alternative whatsoever. There is no other way for investors to invest their funds with treasury bonds being the only option,” the expert told Bigness.ru.

When the world economy recovers, investors will realize that there are plenty of other opportunities for investments, the European bonds, for example (if the European economy recovers from the crisis too, of course), or the bonds of developing countries.

“The pyramid of US bonds will collapse in this case. The debt percentage grows every day, which makes the USA borrow more and more on a daily basis. America will have no chances to pay off the debt,” the expert said.

Inga Foksha, an analyst with Aton Investment Company, agrees that the US default is quite possible, although she is certain that it will not happen unless the world finds an alternative to the US dollar. The dollar will collapse immediately in case of default, which is absolutely unacceptable, because 63 percent of world reserves are saved in dollars. Their collapse will trigger the global economic collapse.

“Technically, the default of the United States may occur during three or five years, although it is too early to say that it could be possible. The USA can print new dollars to pay their debts with them,” she said.

Nevertheless, the US government bonds still enjoy investors’ support and are still considered a risk-free investment.

Dmitry Abzalov believes that the current situation with the US national debt may end with a new war. The war will destroy excessive liquidity and the current debt.

“The war in Iraq began to delay the US crisis, which started brewing in the US economy at the end of 2000,” he said.

The Americans have been trying to raise their economy with the help of military actions for decades, since the Great Depression of the 1930s. A war boosts the nation’s industry, even if a recovery is based on defense orders.

Creeping Privacy Threat

Creeping Privacy Threat

By Geoff Metcalf

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"Find out just what people will submit to, and you have found out the exact amount of injustice and wrong which will be imposed upon them;" -- Frederick Douglas

The routine incremental invasion of privacy by the government continues. For years some of us have been warning about the catch-22 danger of various government ID plans. The big boogie man threat is a fear of eventual mandates for everyone to be issued sub dermal biochip implants. Not yet…it’s too early to try for that brass ring.

However, prior to ‘Big Brother’ being able to realize ubiquitous and omniscient control as the objective, we the people have to be conditioned to acceptance and various incremental steps must be introduced, mandated and accepted.

The common mantra of privacy usurpers is “If you don’t have anything to hide, what are you worried about?” The collorary being, if you DO have concerns about government’s all seeing eye targeting you for monitoring and tracking, you must be engaged in something nefarious. After all, they are from the government and they are here to help you. Right?

Introducing the Transportation Workers Identification Credential (TWIC). What the heck is that? According to the TSA, “TWIC is a common identification credential for all personnel requiring unescorted access to secure areas of MTSA-regulated facilities and vessels, and all mariners holding Coast Guard-issued credentials. Individuals who meet TWIC eligibility requirements will be issued a tamper-resistant credential containing the worker's biometric (fingerprint template) to allow for a positive link between the card and the individual.”

Congress apparently directed the government to issue this biometric security credential to folks with unescorted access to secure areas and all mariners holding Coast Guard issued credentials or qualification documents. The goal obviously is to improve port security.

I recently heard from a Charter Boat Captain with a Masters certificate from the Coast Guard who has been required to get this new ID. The deadline is near for any and all card carrying merchant marine types and charter boat captains to pay their $132.50, get fingerprinted and ‘activated’. Some 1.2 million individuals will apply for a TWIC.

TWIC is more than just another pretty ID card. Pictures and thumbprints are just the ante.

Sure it will be used for visual identity checks. Card holders will have to present their cards to authorized personnel, who will check the photo, inspect security features on the TWIC and look for signs of tampering. But it gets better (and more efficient)…the “Coast Guard will conduct vessel and facility inspections and use hand -held readers during spot checks to ensure credentials are valid and identity is verified. A second rulemaking will establish access control requirements, including the use of electronic readers by certain vessel and facility owners and operators.”

I’ve been complaining about sub dermal biochips since 1998. In addition to itching and moaning on the radio about the dangers of implanted biochips I have written tens of thousand words explaining the evisceration of the very concept of privacy. “Privacy—the very concept of privacy—becomes an anachronism.”

There is a long list of alleged ‘benefits’ of enhanced ID cards and biochip implants. And like the list of ‘benefits’ Freud touted for heroin and cocaine, they are wrong.

Implanted biochips can help locate downed pilots, kidnapped children and escaped prisoners. They can also track political adversaries and target location and movements, and function as a virtual ‘lojack’ for people.

The Incrementalism finesse starts by mandating biochips for specific publics. First they implant prisoners, then high value military assets, then the entire military, then government workers, then anyone receiving government money…

Eventually, when more people have implants than don’t…they no longer are ‘voluntary’ but mandatory. THEN, the unelected, unaccountable bureaucrat class has total control.
Incrementalism, unintended (or intended) consequences, abuse of power under the color of authority, metastasizes into a cancer that eats at the very essence of freedom and liberty. That is a very bad thing!

Scott McDonald of the Website Scan This News has warned: "All movement, transactions, and interactions can be recorded and monitored once everyone has their own unique identifier. Every detail of a person’s life will be finally accessible to authorities through the widespread use of implanted chips.”

The key goal and objective of the tyrant is to CONTROL. Whether it is gun control, smoker control, tax control, or control of the ability to freely move, control is the objective.

IDF In Gaza: Killing Civilians, Vandalism, and Lax Rules of Engagement

IDF in Gaza: Killing civilians, vandalism, and lax rules of engagement

Amos Harel

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During Operation Cast Lead, Israeli forces killed Palestinian civilians under permissive rules of engagement and intentionally destroyed their property, say soldiers who fought in the offensive.

The soldiers are graduates of the Yitzhak Rabin pre-military preparatory course at Oranim Academic College in Tivon. Some of their statements made on Feb. 13 will appear Thursday and Friday in Haaretz. Dozens of graduates of the course who took part in the discussion fought in the Gaza operation.

The speakers included combat pilots and infantry soldiers. Their testimony runs counter to the Israel Defense Forces' claims that Israeli troops observed a high level of moral behavior during the operation. The session's transcript was published this week in the newsletter for the course's graduates.

The testimonies include a description by an infantry squad leader of an incident where an IDF sharpshooter mistakenly shot a Palestinian mother and her two children. "There was a house with a family inside .... We put them in a room. Later we left the house and another platoon entered it, and a few days after that there was an order to release the family. They had set up positions upstairs. There was a sniper position on the roof," the soldier said.

"The platoon commander let the family go and told them to go to the right. One mother and her two children didn't understand and went to the left, but they forgot to tell the sharpshooter on the roof they had let them go and it was okay, and he should hold his fire and he ... he did what he was supposed to, like he was following his orders."

According to the squad leader: "The sharpshooter saw a woman and children approaching him, closer than the lines he was told no one should pass. He shot them straight away. In any case, what happened is that in the end he killed them.

"I don't think he felt too bad about it, because after all, as far as he was concerned, he did his job according to the orders he was given. And the atmosphere in general, from what I understood from most of my men who I talked to ... I don't know how to describe it .... The lives of Palestinians, let's say, is something very, very less important than the lives of our soldiers. So as far as they are concerned they can justify it that way," he said.

Another squad leader from the same brigade told of an incident where the company commander ordered that an elderly Palestinian woman be shot and killed; she was walking on a road about 100 meters from a house the company had commandeered.

The squad leader said he argued with his commander over the permissive rules of engagement that allowed the clearing out of houses by shooting without warning the residents beforehand. After the orders were changed, the squad leader's soldiers complained that "we should kill everyone there [in the center of Gaza]. Everyone there is a terrorist."

The squad leader said: "You do not get the impression from the officers that there is any logic to it, but they won't say anything. To write 'death to the Arabs' on the walls, to take family pictures and spit on them, just because you can. I think this is the main thing: To understand how much the IDF has fallen in the realm of ethics, really. It's what I'll remember the most."

Researchers find ways to sniff keystrokes from thin air

Researchers find ways to sniff keystrokes from thin air

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That PC keyboard you're using may be giving away your passwords. Researchers say they've discovered new ways to read what you're typing by aiming special wireless or laser equipment at the keyboard or by simply plugging into a nearby electrical socket.

Two separate research teams, from the Ecole Polytechnique Federale de Lausanne and security consultancy Inverse Path have taken a close look at the electromagnetic radiation that is generated every time a computer keyboard is tapped. It turns out that this keystroke radiation is actually pretty easy to capture and decode -- if you're a computer hacker-type, that is.

The Ecole Polytechnique team did its work over the air. Using an oscilloscope and an inexpensive wireless antenna, the team was able to pick up keystrokes from virtually any keyboard, including laptops. "We discovered four different ways to recover the keystroke of a keyboard," said Matin Vuagnoux, a Ph.D. student at the university. With the keyboard's cabling and nearby power wires acting as antennas for these electromagnetic signals, the researchers were able to read keystrokes with 95 percent accuracy over a distance of up to 20 meters (22 yards), in ideal conditions.

Laptops were the hardest to read, because the cable between the keyboard and the PC is so short, making for a tiny antenna. The researchers found a way to sniff USB keyboards, but older PS/2 keyboards, which have ground wires that connect right into the electric grid, were the best.

Even encrypted wireless keyboards are not safe from this attack. That's because they use a special algorithm to check which key is pressed, and when that algorithm is run, the keyboard gives off a distinctive electromagnetic signal, which can be picked up via wireless.

Vuagnoux and co-researcher Sylvain Pasini were able to pick up the signals using an antenna, an oscilloscope, an analog-digital converter and a PC, running some custom code they've created. Total cost: about US$5,000.

Spies have long known about the risk of data leaking via electromagnetic radiation for about 50 years now. After the U.S. National Security Agency found strange surveillance equipment in a U.S. Department of State communications room in 1962, the agency began looking into ways that radiation from communications equipment could be tapped. Some of this research, known as Tempest, has now been declassified, but public work in this area didn't kick off until the mid-1980s.

The idea of someone sniffing out keystrokes with a wireless antenna may seem ripped from the pages of a spy thriller, but criminals have already used sneaky techniques such as wireless video cameras placed near automated teller machines and Wi-Fi sniffers to steal credit-card numbers and passwords.

"If you are a company using highly confidential data, you have to know that the keyboard is a problem," Vuagnoux said.

If pulling keystrokes out of thin air isn't bad enough, another team has found a way to get the same kind of information out of a power socket. Using similar techniques, Inverse Path researchers Andrea Barisani and Daniele Bianco say they get accurate results, picking out keyboard signals from keyboard ground cables.

Their work only applies to older, PS/2 keyboards, but the data they get is "pretty good," they say. On these keyboards, "the data cable is so close to the ground cable, the emanations from the data cable leak onto the ground cable, which acts as an antenna," Barisani said.

That ground wire passes through the PC and into the building's power wires, where the researchers can pick up the signals using a computer, an oscilloscope and about $500 worth of other equipment. They believe they could pick up signals from a distance of up to 50 meters by simply plugging a keystroke-sniffing device into the power grid somewhere close to the PC they want to snoop on.

Because PS/2 keyboards emanate radiation at a standard, very specific frequency, the researchers can pick up a keyboard's signal even on a crowded power grid. They tried out their experiment at a local university's physics department, and even with particle detectors, oscilloscopes and other computers on the network were still able to get good data.

Barisani and Bianco will present their findings at the CanSecWest laptop, such as the screen. Using the laser's very precise measurements of the vibrations on the screen's surface caused by typing, they can figure out what is being typed. hacking conference next week in Vancouver. They will also show how they've been able to read keystrokes by pointing a laser microphone at reflective surfaces on a

Previously researchers had shown how the sound of keystrokes could be analyzed to figure out what is being typed, but using the laser microphone to pick up mechanical vibrations rather than sound makes this technique much more effective, Barisani said. "We extend the range because with the laser microphone, you can be hundreds of meters away," he said.

The Ecole Polytechnique team has submitted their research for peer review and hopes to publish it very soon.

The Big Takeover

The Big Takeover

The global economic crisis isn't about money - it's about power. How Wall Street insiders are using the bailout to stage a revolution

MATT TAIBBI

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It's over — we're officially, royally fucked. no empire can survive being rendered a permanent laughingstock, which is what happened as of a few weeks ago, when the buffoons who have been running things in this country finally went one step too far. It happened when Treasury Secretary Timothy Geithner was forced to admit that he was once again going to have to stuff billions of taxpayer dollars into a dying insurance giant called AIG, itself a profound symbol of our national decline — a corporation that got rich insuring the concrete and steel of American industry in the country's heyday, only to destroy itself chasing phantom fortunes at the Wall Street card tables, like a dissolute nobleman gambling away the family estate in the waning days of the British Empire.

The latest bailout came as AIG admitted to having just posted the largest quarterly loss in American corporate history — some $61.7 billion. In the final three months of last year, the company lost more than $27 million every hour. That's $465,000 a minute, a yearly income for a median American household every six seconds, roughly $7,750 a second. And all this happened at the end of eight straight years that America devoted to frantically chasing the shadow of a terrorist threat to no avail, eight years spent stopping every citizen at every airport to search every purse, bag, crotch and briefcase for juice boxes and explosive tubes of toothpaste. Yet in the end, our government had no mechanism for searching the balance sheets of companies that held life-or-death power over our society and was unable to spot holes in the national economy the size of Libya (whose entire GDP last year was smaller than AIG's 2008 losses).

So it's time to admit it: We're fools, protagonists in a kind of gruesome comedy about the marriage of greed and stupidity. And the worst part about it is that we're still in denial — we still think this is some kind of unfortunate accident, not something that was created by the group of psychopaths on Wall Street whom we allowed to gang-rape the American Dream. When Geithner announced the new $30 billion bailout, the party line was that poor AIG was just a victim of a lot of shitty luck — bad year for business, you know, what with the financial crisis and all. Edward Liddy, the company's CEO, actually compared it to catching a cold: "The marketplace is a pretty crummy place to be right now," he said. "When the world catches pneumonia, we get it too." In a pathetic attempt at name-dropping, he even whined that AIG was being "consumed by the same issues that are driving house prices down and 401K statements down and Warren Buffet's investment portfolio down."

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Liddy made AIG sound like an orphan begging in a soup line, hungry and sick from being left out in someone else's financial weather. He conveniently forgot to mention that AIG had spent more than a decade systematically scheming to evade U.S. and international regulators, or that one of the causes of its "pneumonia" was making colossal, world-sinking $500 billion bets with money it didn't have, in a toxic and completely unregulated derivatives market.

Nor did anyone mention that when AIG finally got up from its seat at the Wall Street casino, broke and busted in the afterdawn light, it owed money all over town — and that a huge chunk of your taxpayer dollars in this particular bailout scam will be going to pay off the other high rollers at its table. Or that this was a casino unique among all casinos, one where middle-class taxpayers cover the bets of billionaires.

People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess. And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — "our partners in the government," as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.

The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.

I. PATIENT ZERO

The best way to understand the financial crisis is to understand the meltdown at AIG. AIG is what happens when short, bald managers of otherwise boring financial bureaucracies start seeing Brad Pitt in the mirror. This is a company that built a giant fortune across more than a century by betting on safety-conscious policyholders — people who wear seat belts and build houses on high ground — and then blew it all in a year or two by turning their entire balance sheet over to a guy who acted like making huge bets with other people's money would make his dick bigger.

That guy — the Patient Zero of the global economic meltdown — was one Joseph Cassano, the head of a tiny, 400-person unit within the company called AIG Financial Products, or AIGFP. Cassano, a pudgy, balding Brooklyn College grad with beady eyes and way too much forehead, cut his teeth in the Eighties working for Mike Milken, the granddaddy of modern Wall Street debt alchemists. Milken, who pioneered the creative use of junk bonds, relied on messianic genius and a whole array of insider schemes to evade detection while wreaking financial disaster. Cassano, by contrast, was just a greedy little turd with a knack for selective accounting who ran his scam right out in the open, thanks to Washington's deregulation of the Wall Street casino. "It's all about the regulatory environment," says a government source involved with the AIG bailout. "These guys look for holes in the system, for ways they can do trades without government interference. Whatever is unregulated, all the action is going to pile into that."

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The mess Cassano created had its roots in an investment boom fueled in part by a relatively new type of financial instrument called a collateralized-debt obligation. A CDO is like a box full of diced-up assets. They can be anything: mortgages, corporate loans, aircraft loans, credit-card loans, even other CDOs. So as X mortgage holder pays his bill, and Y corporate debtor pays his bill, and Z credit-card debtor pays his bill, money flows into the box.

The key idea behind a CDO is that there will always be at least some money in the box, regardless of how dicey the individual assets inside it are. No matter how you look at a single unemployed ex-con trying to pay the note on a six-bedroom house, he looks like a bad investment. But dump his loan in a box with a smorgasbord of auto loans, credit-card debt, corporate bonds and other crap, and you can be reasonably sure that somebody is going to pay up. Say $100 is supposed to come into the box every month. Even in an apocalypse, when $90 in payments might default, you'll still get $10. What the inventors of the CDO did is divide up the box into groups of investors and put that $10 into its own level, or "tranche." They then convinced ratings agencies like Moody's and S&P to give that top tranche the highest AAA rating — meaning it has close to zero credit risk.

Suddenly, thanks to this financial seal of approval, banks had a way to turn their shittiest mortgages and other financial waste into investment-grade paper and sell them to institutional investors like pensions and insurance companies, which were forced by regulators to keep their portfolios as safe as possible. Because CDOs offered higher rates of return than truly safe products like Treasury bills, it was a win-win: Banks made a fortune selling CDOs, and big investors made much more holding them.

The problem was, none of this was based on reality. "The banks knew they were selling crap," says a London-based trader from one of the bailed-out companies. To get AAA ratings, the CDOs relied not on their actual underlying assets but on crazy mathematical formulas that the banks cooked up to make the investments look safer than they really were. "They had some back room somewhere where a bunch of Indian guys who'd been doing nothing but math for God knows how many years would come up with some kind of model saying that this or that combination of debtors would only default once every 10,000 years," says one young trader who sold CDOs for a major investment bank. "It was nuts."

Now that even the crappiest mortgages could be sold to conservative investors, the CDOs spurred a massive explosion of irresponsible and predatory lending. In fact, there was such a crush to underwrite CDOs that it became hard to find enough subprime mortgages — read: enough unemployed meth dealers willing to buy million-dollar homes for no money down — to fill them all. As banks and investors of all kinds took on more and more in CDOs and similar instruments, they needed some way to hedge their massive bets — some kind of insurance policy, in case the housing bubble burst and all that debt went south at the same time. This was particularly true for investment banks, many of which got stuck holding or "warehousing" CDOs when they wrote more than they could sell. And that's were Joe Cassano came in.

Known for his boldness and arrogance, Cassano took over as chief of AIGFP in 2001. He was the favorite of Maurice "Hank" Greenberg, the head of AIG, who admired the younger man's hard-driving ways, even if neither he nor his successors fully understood exactly what it was that Cassano did. According to a source familiar with AIG's internal operations, Cassano basically told senior management, "You know insurance, I know investments, so you do what you do, and I'll do what I do — leave me alone." Given a free hand within the company, Cassano set out from his offices in London to sell a lucrative form of "insurance" to all those investors holding lots of CDOs. His tool of choice was another new financial instrument known as a credit-default swap, or CDS.

The CDS was popularized by J.P. Morgan, in particular by a group of young, creative bankers who would later become known as the "Morgan Mafia," as many of them would go on to assume influential positions in the finance world. In 1994, in between booze and games of tennis at a resort in Boca Raton, Florida, the Morgan gang plotted a way to help boost the bank's returns. One of their goals was to find a way to lend more money, while working around regulations that required them to keep a set amount of cash in reserve to back those loans. What they came up with was an early version of the credit-default swap.

In its simplest form, a CDS is just a bet on an outcome. Say Bank A writes a million-dollar mortgage to the Pope for a town house in the West Village. Bank A wants to hedge its mortgage risk in case the Pope can't make his monthly payments, so it buys CDS protection from Bank B, wherein it agrees to pay Bank B a premium of $1,000 a month for five years. In return, Bank B agrees to pay Bank A the full million-dollar value of the Pope's mortgage if he defaults. In theory, Bank A is covered if the Pope goes on a meth binge and loses his job.

When Morgan presented their plans for credit swaps to regulators in the late Nineties, they argued that if they bought CDS protection for enough of the investments in their portfolio, they had effectively moved the risk off their books. Therefore, they argued, they should be allowed to lend more, without keeping more cash in reserve. A whole host of regulators — from the Federal Reserve to the Office of the Comptroller of the Currency — accepted the argument, and Morgan was allowed to put more money on the street.

What Cassano did was to transform the credit swaps that Morgan popularized into the world's largest bet on the housing boom. In theory, at least, there's nothing wrong with buying a CDS to insure your investments. Investors paid a premium to AIGFP, and in return the company promised to pick up the tab if the mortgage-backed CDOs went bust. But as Cassano went on a selling spree, the deals he made differed from traditional insurance in several significant ways. First, the party selling CDS protection didn't have to post any money upfront. When a $100 corporate bond is sold, for example, someone has to show 100 actual dollars. But when you sell a $100 CDS guarantee, you don't have to show a dime. So Cassano could sell investment banks billions in guarantees without having any single asset to back it up.

Secondly, Cassano was selling so-called "naked" CDS deals. In a "naked" CDS, neither party actually holds the underlying loan. In other words, Bank B not only sells CDS protection to Bank A for its mortgage on the Pope — it turns around and sells protection to Bank C for the very same mortgage. This could go on ad nauseam: You could have Banks D through Z also betting on Bank A's mortgage. Unlike traditional insurance, Cassano was offering investors an opportunity to bet that someone else's house would burn down, or take out a term life policy on the guy with AIDS down the street. It was no different from gambling, the Wall Street version of a bunch of frat brothers betting on Jay Feely to make a field goal. Cassano was taking book for every bank that bet short on the housing market, but he didn't have the cash to pay off if the kick went wide.

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In a span of only seven years, Cassano sold some $500 billion worth of CDS protection, with at least $64 billion of that tied to the subprime mortgage market. AIG didn't have even a fraction of that amount of cash on hand to cover its bets, but neither did it expect it would ever need any reserves. So long as defaults on the underlying securities remained a highly unlikely proposition, AIG was essentially collecting huge and steadily climbing premiums by selling insurance for the disaster it thought would never come.

Initially, at least, the revenues were enormous: AIGFP's returns went from $737 million in 1999 to $3.2 billion in 2005. Over the past seven years, the subsidiary's 400 employees were paid a total of $3.5 billion; Cassano himself pocketed at least $280 million in compensation. Everyone made their money — and then it all went to shit.

II. THE REGULATORS

Cassano's outrageous gamble wouldn't have been possible had he not had the good fortune to take over AIGFP just as Sen. Phil Gramm — a grinning, laissez-faire ideologue from Texas — had finished engineering the most dramatic deregulation of the financial industry since Emperor Hien Tsung invented paper money in 806 A.D. For years, Washington had kept a watchful eye on the nation's banks. Ever since the Great Depression, commercial banks — those that kept money on deposit for individuals and businesses — had not been allowed to double as investment banks, which raise money by issuing and selling securities. The Glass-Steagall Act, passed during the Depression, also prevented banks of any kind from getting into the insurance business.

But in the late Nineties, a few years before Cassano took over AIGFP, all that changed. The Democrats, tired of getting slaughtered in the fundraising arena by Republicans, decided to throw off their old reliance on unions and interest groups and become more "business-friendly." Wall Street responded by flooding Washington with money, buying allies in both parties. In the 10-year period beginning in 1998, financial companies spent $1.7 billion on federal campaign contributions and another $3.4 billion on lobbyists. They quickly got what they paid for. In 1999, Gramm co-sponsored a bill that repealed key aspects of the Glass-Steagall Act, smoothing the way for the creation of financial megafirms like Citigroup. The move did away with the built-in protections afforded by smaller banks. In the old days, a local banker knew the people whose loans were on his balance sheet: He wasn't going to give a million-dollar mortgage to a homeless meth addict, since he would have to keep that loan on his books. But a giant merged bank might write that loan and then sell it off to some fool in China, and who cared?

The very next year, Gramm compounded the problem by writing a sweeping new law called the Commodity Futures Modernization Act that made it impossible to regulate credit swaps as either gambling or securities. Commercial banks — which, thanks to Gramm, were now competing directly with investment banks for customers — were driven to buy credit swaps to loosen capital in search of higher yields. "By ruling that credit-default swaps were not gaming and not a security, the way was cleared for the growth of the market," said Eric Dinallo, head of the New York State Insurance Department.

The blanket exemption meant that Joe Cassano could now sell as many CDS contracts as he wanted, building up as huge a position as he wanted, without anyone in government saying a word. "You have to remember, investment banks aren't in the business of making huge directional bets," says the government source involved in the AIG bailout. When investment banks write CDS deals, they hedge them. But insurance companies don't have to hedge. And that's what AIG did. "They just bet massively long on the housing market," says the source. "Billions and billions."

In the biggest joke of all, Cassano's wheeling and dealing was regulated by the Office of Thrift Supervision, an agency that would prove to be defiantly uninterested in keeping watch over his operations. How a behemoth like AIG came to be regulated by the little-known and relatively small OTS is yet another triumph of the deregulatory instinct. Under another law passed in 1999, certain kinds of holding companies could choose the OTS as their regulator, provided they owned one or more thrifts (better known as savings-and-loans). Because the OTS was viewed as more compliant than the Fed or the Securities and Exchange Commission, companies rushed to reclassify themselves as thrifts. In 1999, AIG purchased a thrift in Delaware and managed to get approval for OTS regulation of its entire operation.

Making matters even more hilarious, AIGFP — a London-based subsidiary of an American insurance company — ought to have been regulated by one of Europe's more stringent regulators, like Britain's Financial Services Authority. But the OTS managed to convince the Europeans that it had the muscle to regulate these giant companies. By 2007, the EU had conferred legitimacy to OTS supervision of three mammoth firms — GE, AIG and Ameriprise.

That same year, as the subprime crisis was exploding, the Government Accountability Office criticized the OTS, noting a "disparity between the size of the agency and the diverse firms it oversees." Among other things, the GAO report noted that the entire OTS had only one insurance specialist on staff — and this despite the fact that it was the primary regulator for the world's largest insurer!

"There's this notion that the regulators couldn't do anything to stop AIG," says a government official who was present during the bailout. "That's bullshit. What you have to understand is that these regulators have ultimate power. They can send you a letter and say, 'You don't exist anymore,' and that's basically that. They don't even really need due process. The OTS could have said, 'We're going to pull your charter; we're going to pull your license; we're going to sue you.' And getting sued by your primary regulator is the kiss of death."

When AIG finally blew up, the OTS regulator ostensibly in charge of overseeing the insurance giant — a guy named C.K. Lee — basically admitted that he had blown it. His mistake, Lee said, was that he believed all those credit swaps in Cassano's portfolio were "fairly benign products." Why? Because the company told him so. "The judgment the company was making was that there was no big credit risk," he explained. (Lee now works as Midwest region director of the OTS; the agency declined to make him available for an interview.)

In early March, after the latest bailout of AIG, Treasury Secretary Timothy Geithner took what seemed to be a thinly veiled shot at the OTS, calling AIG a "huge, complex global insurance company attached to a very complicated investment bank/hedge fund that was allowed to build up without any adult supervision." But even without that "adult supervision," AIG might have been OK had it not been for a complete lack of internal controls. For six months before its meltdown, according to insiders, the company had been searching for a full-time chief financial officer and a chief risk-assessment officer, but never got around to hiring either. That meant that the 18th-largest company in the world had no one checking to make sure its balance sheet was safe and no one keeping track of how much cash and assets the firm had on hand. The situation was so bad that when outside consultants were called in a few weeks before the bailout, senior executives were unable to answer even the most basic questions about their company — like, for instance, how much exposure the firm had to the residential-mortgage market.

III. THE CRASH

Ironically, when reality finally caught up to Cassano, it wasn't because the housing market crapped but because of AIG itself. Before 2005, the company's debt was rated triple-A, meaning he didn't need to post much cash to sell CDS protection: The solid creditworthiness of AIG's name was guarantee enough. But the company's crummy accounting practices eventually caused its credit rating to be downgraded, triggering clauses in the CDS contracts that forced Cassano to post substantially more collateral to back his deals.

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By the fall of 2007, it was evident that AIGFP's portfolio had turned poisonous, but like every good Wall Street huckster, Cassano schemed to keep his insane, Earth-swallowing gamble hidden from public view. That August, balls bulging, he announced to investors on a conference call that "it is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing $1 in any of those transactions." As he spoke, his CDS portfolio was racking up $352 million in losses. When the growing credit crunch prompted senior AIG executives to re-examine its liabilities, a company accountant named Joseph St. Denis became "gravely concerned" about the CDS deals and their potential for mass destruction. Cassano responded by personally forcing the poor sap out of the firm, telling him he was "deliberately excluded" from the financial review for fear that he might "pollute the process."

The following February, when AIG posted $11.5 billion in annual losses, it announced the resignation of Cassano as head of AIGFP, saying an auditor had found a "material weakness" in the CDS portfolio. But amazingly, the company not only allowed Cassano to keep $34 million in bonuses, it kept him on as a consultant for $1 million a month. In fact, Cassano remained on the payroll and kept collecting his monthly million through the end of September 2008, even after taxpayers had been forced to hand AIG $85 billion to patch up his fuck-ups. When asked in October why the company still retained Cassano at his $1 million-a-month rate despite his role in the probable downfall of Western civilization, CEO Martin Sullivan told Congress with a straight face that AIG wanted to "retain the 20-year knowledge that Mr. Cassano had." (Cassano, who is apparently hiding out in his lavish town house near Harrods in London, could not be reached for comment.)

What sank AIG in the end was another credit downgrade. Cassano had written so many CDS deals that when the company was facing another downgrade to its credit rating last September, from AA to A, it needed to post billions in collateral — not only more cash than it had on its balance sheet but more cash than it could raise even if it sold off every single one of its liquid assets. Even so, management dithered for days, not believing the company was in serious trouble. AIG was a dried-up prune, sapped of any real value, and its top executives didn't even know it.

On the weekend of September 13th, AIG's senior leaders were summoned to the offices of the New York Federal Reserve. Regulators from Dinallo's insurance office were there, as was Geithner, then chief of the New York Fed. Treasury Secretary Hank Paulson, who spent most of the weekend preoccupied with the collapse of Lehman Brothers, came in and out. Also present, for reasons that would emerge later, was Lloyd Blankfein, CEO of Goldman Sachs. The only relevant government office that wasn't represented was the regulator that should have been there all along: the OTS.

"We sat down with Paulson, Geithner and Dinallo," says a person present at the negotiations. "I didn't see the OTS even once."

On September 14th, according to another person present, Treasury officials presented Blankfein and other bankers in attendance with an absurd proposal: "They basically asked them to spend a day and check to see if they could raise the money privately." The laughably short time span to complete the mammoth task made the answer a foregone conclusion. At the end of the day, the bankers came back and told the government officials, gee, we checked, but we can't raise that much. And the bailout was on.

A short time later, it came out that AIG was planning to pay some $90 million in deferred compensation to former executives, and to accelerate the payout of $277 million in bonuses to others — a move the company insisted was necessary to "retain key employees." When Congress balked, AIG canceled the $90 million in payments.

Then, in January 2009, the company did it again. After all those years letting Cassano run wild, and after already getting caught paying out insane bonuses while on the public till, AIG decided to pay out another $450 million in bonuses. And to whom? To the 400 or so employees in Cassano's old unit, AIGFP, which is due to go out of business shortly! Yes, that's right, an average of $1.1 million in taxpayer-backed money apiece, to the very people who spent the past decade or so punching a hole in the fabric of the universe!

"We, uh, needed to keep these highly expert people in their seats," AIG spokeswoman Christina Pretto says to me in early February.

"But didn't these 'highly expert people' basically destroy your company?" I ask.

Pretto protests, says this isn't fair. The employees at AIGFP have already taken pay cuts, she says. Not retaining them would dilute the value of the company even further, make it harder to wrap up the unit's operations in an orderly fashion.

The bonuses are a nice comic touch highlighting one of the more outrageous tangents of the bailout age, namely the fact that, even with the planet in flames, some members of the Wall Street class can't even get used to the tragedy of having to fly coach. "These people need their trips to Baja, their spa treatments, their hand jobs," says an official involved in the AIG bailout, a serious look on his face, apparently not even half-kidding. "They don't function well without them."

IV. THE POWER GRAB

So that's the first step in wall street's power grab: making up things like credit-default swaps and collateralized-debt obligations, financial products so complex and inscrutable that ordinary American dumb people — to say nothing of federal regulators and even the CEOs of major corporations like AIG — are too intimidated to even try to understand them. That, combined with wise political investments, enabled the nation's top bankers to effectively scrap any meaningful oversight of the financial industry. In 1997 and 1998, the years leading up to the passage of Phil Gramm's fateful act that gutted Glass-Steagall, the banking, brokerage and insurance industries spent $350 million on political contributions and lobbying. Gramm alone — then the chairman of the Senate Banking Committee — collected $2.6 million in only five years. The law passed 90-8 in the Senate, with the support of 38 Democrats, including some names that might surprise you: Joe Biden, John Kerry, Tom Daschle, Dick Durbin, even John Edwards.

The act helped create the too-big-to-fail financial behemoths like Citigroup, AIG and Bank of America — and in turn helped those companies slowly crush their smaller competitors, leaving the major Wall Street firms with even more money and power to lobby for further deregulatory measures. "We're moving to an oligopolistic situation," Kenneth Guenther, a top executive with the Independent Community Bankers of America, lamented after the Gramm measure was passed.

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The situation worsened in 2004, in an extraordinary move toward deregulation that never even got to a vote. At the time, the European Union was threatening to more strictly regulate the foreign operations of America's big investment banks if the U.S. didn't strengthen its own oversight. So the top five investment banks got together on April 28th of that year and — with the helpful assistance of then-Goldman Sachs chief and future Treasury Secretary Hank Paulson — made a pitch to George Bush's SEC chief at the time, William Donaldson, himself a former investment banker. The banks generously volunteered to submit to new rules restricting them from engaging in excessively risky activity. In exchange, they asked to be released from any lending restrictions. The discussion about the new rules lasted just 55 minutes, and there was not a single representative of a major media outlet there to record the fateful decision.

Donaldson OK'd the proposal, and the new rules were enough to get the EU to drop its threat to regulate the five firms. The only catch was, neither Donaldson nor his successor, Christopher Cox, actually did any regulating of the banks. They named a commission of seven people to oversee the five companies, whose combined assets came to total more than $4 trillion. But in the last year and a half of Cox's tenure, the group had no director and did not complete a single inspection. Great deal for the banks, which originally complained about being regulated by both Europe and the SEC, and ended up being regulated by no one.

Once the capital requirements were gone, those top five banks went hog-wild, jumping ass-first into the then-raging housing bubble. One of those was Bear Stearns, which used its freedom to drown itself in bad mortgage loans. In the short period between the 2004 change and Bear's collapse, the firm's debt-to-equity ratio soared from 12-1 to an insane 33-1. Another culprit was Goldman Sachs, which also had the good fortune, around then, to see its CEO, a bald-headed Frankensteinian goon named Hank Paulson (who received an estimated $200 million tax deferral by joining the government), ascend to Treasury secretary.

Freed from all capital restraints, sitting pretty with its man running the Treasury, Goldman jumped into the housing craze just like everyone else on Wall Street. Although it famously scored an $11 billion coup in 2007 when one of its trading units smartly shorted the housing market, the move didn't tell the whole story. In truth, Goldman still had a huge exposure come that fateful summer of 2008 — to none other than Joe Cassano.

Goldman Sachs, it turns out, was Cassano's biggest customer, with $20 billion of exposure in Cassano's CDS book. Which might explain why Goldman chief Lloyd Blankfein was in the room with ex-Goldmanite Hank Paulson that weekend of September 13th, when the federal government was supposedly bailing out AIG.

When asked why Blankfein was there, one of the government officials who was in the meeting shrugs. "One might say that it's because Goldman had so much exposure to AIGFP's portfolio," he says. "You'll never prove that, but one might suppose."

Market analyst Eric Salzman is more blunt. "If AIG went down," he says, "there was a good chance Goldman would not be able to collect." The AIG bailout, in effect, was Goldman bailing out Goldman.

Eventually, Paulson went a step further, elevating another ex-Goldmanite named Edward Liddy to run AIG — a company whose bailout money would be coming, in part, from the newly created TARP program, administered by another Goldman banker named Neel Kashkari.

V. REPO MEN

There are plenty of people who have noticed, in recent years, that when they lost their homes to foreclosure or were forced into bankruptcy because of crippling credit-card debt, no one in the government was there to rescue them. But when Goldman Sachs — a company whose average employee still made more than $350,000 last year, even in the midst of a depression — was suddenly faced with the possibility of losing money on the unregulated insurance deals it bought for its insane housing bets, the government was there in an instant to patch the hole. That's the essence of the bailout: rich bankers bailing out rich bankers, using the taxpayers' credit card.

The people who have spent their lives cloistered in this Wall Street community aren't much for sharing information with the great unwashed. Because all of this shit is complicated, because most of us mortals don't know what the hell LIBOR is or how a REIT works or how to use the word "zero coupon bond" in a sentence without sounding stupid — well, then, the people who do speak this idiotic language cannot under any circumstances be bothered to explain it to us and instead spend a lot of time rolling their eyes and asking us to trust them.

That roll of the eyes is a key part of the psychology of Paulsonism. The state is now being asked not just to call off its regulators or give tax breaks or funnel a few contracts to connected companies; it is intervening directly in the economy, for the sole purpose of preserving the influence of the megafirms. In essence, Paulson used the bailout to transform the government into a giant bureaucracy of entitled assholedom, one that would socialize "toxic" risks but keep both the profits and the management of the bailed-out firms in private hands. Moreover, this whole process would be done in secret, away from the prying eyes of NASCAR dads, broke-ass liberals who read translations of French novels, subprime mortgage holders and other such financial losers.

Some aspects of the bailout were secretive to the point of absurdity. In fact, if you look closely at just a few lines in the Federal Reserve's weekly public disclosures, you can literally see the moment where a big chunk of your money disappeared for good. The H4 report (called "Factors Affecting Reserve Balances") summarizes the activities of the Fed each week. You can find it online, and it's pretty much the only thing the Fed ever tells the world about what it does. For the week ending February 18th, the number under the heading "Repurchase Agreements" on the table is zero. It's a significant number.

Why? In the pre-crisis days, the Fed used to manage the money supply by periodically buying and selling securities on the open market through so-called Repurchase Agreements, or Repos. The Fed would typically dump $25 billion or so in cash onto the market every week, buying up Treasury bills, U.S. securities and even mortgage-backed securities from institutions like Goldman Sachs and J.P. Morgan, who would then "repurchase" them in a short period of time, usually one to seven days. This was the Fed's primary mechanism for controlling interest rates: Buying up securities gives banks more money to lend, which makes interest rates go down. Selling the securities back to the banks reduces the money available for lending, which makes interest rates go up.

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If you look at the weekly H4 reports going back to the summer of 2007, you start to notice something alarming. At the start of the credit crunch, around August of that year, you see the Fed buying a few more Repos than usual — $33 billion or so. By November, as private-bank reserves were dwindling to alarmingly low levels, the Fed started injecting even more cash than usual into the economy: $48 billion. By late December, the number was up to $58 billion; by the following March, around the time of the Bear Stearns rescue, the Repo number had jumped to $77 billion. In the week of May 1st, 2008, the number was $115 billion — "out of control now," according to one congressional aide. For the rest of 2008, the numbers remained similarly in the stratosphere, the Fed pumping as much as $125 billion of these short-term loans into the economy — until suddenly, at the start of this year, the number drops to nothing. Zero.

The reason the number has dropped to nothing is that the Fed had simply stopped using relatively transparent devices like repurchase agreements to pump its money into the hands of private companies. By early 2009, a whole series of new government operations had been invented to inject cash into the economy, most all of them completely secretive and with names you've never heard of. There is the Term Auction Facility, the Term Securities Lending Facility, the Primary Dealer Credit Facility, the Commercial Paper Funding Facility and a monster called the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (boasting the chat-room horror-show acronym ABCPMMMFLF). For good measure, there's also something called a Money Market Investor Funding Facility, plus three facilities called Maiden Lane I, II and III to aid bailout recipients like Bear Stearns and AIG.

While the rest of America, and most of Congress, have been bugging out about the $700 billion bailout program called TARP, all of these newly created organisms in the Federal Reserve zoo have quietly been pumping not billions but trillions of dollars into the hands of private companies (at least $3 trillion so far in loans, with as much as $5.7 trillion more in guarantees of private investments). Although this technically isn't taxpayer money, it still affects taxpayers directly, because the activities of the Fed impact the economy as a whole. And this new, secretive activity by the Fed completely eclipses the TARP program in terms of its influence on the economy.

No one knows who's getting that money or exactly how much of it is disappearing through these new holes in the hull of America's credit rating. Moreover, no one can really be sure if these new institutions are even temporary at all — or whether they are being set up as permanent, state-aided crutches to Wall Street, designed to systematically suck bad investments off the ledgers of irresponsible lenders.

"They're supposed to be temporary," says Paul-Martin Foss, an aide to Rep. Ron Paul. "But we keep getting notices every six months or so that they're being renewed. They just sort of quietly announce it."

None other than disgraced senator Ted Stevens was the poor sap who made the unpleasant discovery that if Congress didn't like the Fed handing trillions of dollars to banks without any oversight, Congress could apparently go fuck itself — or so said the law. When Stevens asked the GAO about what authority Congress has to monitor the Fed, he got back a letter citing an obscure statute that nobody had ever heard of before: the Accounting and Auditing Act of 1950. The relevant section, 31 USC 714(b), dictated that congressional audits of the Federal Reserve may not include "deliberations, decisions and actions on monetary policy matters." The exemption, as Foss notes, "basically includes everything." According to the law, in other words, the Fed simply cannot be audited by Congress. Or by anyone else, for that matter.

VI. WINNERS AND LOSERS

Stevens isn't the only person in Congress to be given the finger by the Fed. In January, when Rep. Alan Grayson of Florida asked Federal Reserve vice chairman Donald Kohn where all the money went — only $1.2 trillion had vanished by then — Kohn gave Grayson a classic eye roll, saying he would be "very hesitant" to name names because it might discourage banks from taking the money.

"Has that ever happened?" Grayson asked. "Have people ever said, 'We will not take your $100 billion because people will find out about it?'"

"Well, we said we would not publish the names of the borrowers, so we have no test of that," Kohn answered, visibly annoyed with Grayson's meddling.

Grayson pressed on, demanding to know on what terms the Fed was lending the money. Presumably it was buying assets and making loans, but no one knew how it was pricing those assets — in other words, no one knew what kind of deal it was striking on behalf of taxpayers. So when Grayson asked if the purchased assets were "marked to market" — a methodology that assigns a concrete value to assets, based on the market rate on the day they are traded — Kohn answered, mysteriously, "The ones that have market values are marked to market." The implication was that the Fed was purchasing derivatives like credit swaps or other instruments that were basically impossible to value objectively — paying real money for God knows what.

"Well, how much of them don't have market values?" asked Grayson. "How much of them are worthless?"

"None are worthless," Kohn snapped.

"Then why don't you mark them to market?" Grayson demanded.

"Well," Kohn sighed, "we are marking the ones to market that have market values."

In essence, the Fed was telling Congress to lay off and let the experts handle things. "It's like buying a car in a used-car lot without opening the hood, and saying, 'I think it's fine,'" says Dan Fuss, an analyst with the investment firm Loomis Sayles. "The salesman says, 'Don't worry about it. Trust me.' It'll probably get us out of the lot, but how much farther? None of us knows."

When one considers the comparatively extensive system of congressional checks and balances that goes into the spending of every dollar in the budget via the normal appropriations process, what's happening in the Fed amounts to something truly revolutionary — a kind of shadow government with a budget many times the size of the normal federal outlay, administered dictatorially by one man, Fed chairman Ben Bernanke. "We spend hours and hours and hours arguing over $10 million amendments on the floor of the Senate, but there has been no discussion about who has been receiving this $3 trillion," says Sen. Bernie Sanders. "It is beyond comprehension."

Count Sanders among those who don't buy the argument that Wall Street firms shouldn't have to face being outed as recipients of public funds, that making this information public might cause investors to panic and dump their holdings in these firms. "I guess if we made that public, they'd go on strike or something," he muses.

And the Fed isn't the only arm of the bailout that has closed ranks. The Treasury, too, has maintained incredible secrecy surrounding its implementation even of the TARP program, which was mandated by Congress. To this date, no one knows exactly what criteria the Treasury Department used to determine which banks received bailout funds and which didn't — particularly the first $350 billion given out under Bush appointee Hank Paulson.

The situation with the first TARP payments grew so absurd that when the Congressional Oversight Panel, charged with monitoring the bailout money, sent a query to Paulson asking how he decided whom to give money to, Treasury responded — and this isn't a joke — by directing the panel to a copy of the TARP application form on its website. Elizabeth Warren, the chair of the Congressional Oversight Panel, was struck nearly speechless by the response.

"Do you believe that?" she says incredulously. "That's not what we had in mind."

Another member of Congress, who asked not to be named, offers his own theory about the TARP process. "I think basically if you knew Hank Paulson, you got the money," he says.

This cozy arrangement created yet another opportunity for big banks to devour market share at the expense of smaller regional lenders. While all the bigwigs at Citi and Goldman and Bank of America who had Paulson on speed-dial got bailed out right away — remember that TARP was originally passed because money had to be lent right now, that day, that minute, to stave off emergency — many small banks are still waiting for help. Five months into the TARP program, some not only haven't received any funds, they haven't even gotten a call back about their applications.

"There's definitely a feeling among community bankers that no one up there cares much if they make it or not," says Tanya Wheeless, president of the Arizona Bankers Association.

Which, of course, is exactly the opposite of what should be happening, since small, regional banks are far less guilty of the kinds of predatory lending that sank the economy. "They're not giving out subprime loans or easy credit," says Wheeless. "At the community level, it's much more bread-and-butter banking."

Nonetheless, the lion's share of the bailout money has gone to the larger, so-called "systemically important" banks. "It's like Treasury is picking winners and losers," says one state banking official who asked not to be identified.

This itself is a hugely important political development. In essence, the bailout accelerated the decline of regional community lenders by boosting the political power of their giant national competitors.

Which, when you think about it, is insane: What had brought us to the brink of collapse in the first place was this relentless instinct for building ever-larger megacompanies, passing deregulatory measures to gradually feed all the little fish in the sea to an ever-shrinking pool of Bigger Fish. To fix this problem, the government should have slowly liquidated these monster, too-big-to-fail firms and broken them down to smaller, more manageable companies. Instead, federal regulators closed ranks and used an almost completely secret bailout process to double down on the same faulty, merger-happy thinking that got us here in the first place, creating a constellation of megafirms under government control that are even bigger, more unwieldy and more crammed to the gills with systemic risk.

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In essence, Paulson and his cronies turned the federal government into one gigantic, half-opaque holding company, one whose balance sheet includes the world's most appallingly large and risky hedge fund, a controlling stake in a dying insurance giant, huge investments in a group of teetering megabanks, and shares here and there in various auto-finance companies, student loans, and other failing businesses. Like AIG, this new federal holding company is a firm that has no mechanism for auditing itself and is run by leaders who have very little grasp of the daily operations of its disparate subsidiary operations.

In other words, it's AIG's rip-roaringly shitty business model writ almost inconceivably massive — to echo Geithner, a huge, complex global company attached to a very complicated investment bank/hedge fund that's been allowed to build up without adult supervision. How much of what kinds of crap is actually on our balance sheet, and what did we pay for it? When exactly will the rent come due, when will the money run out? Does anyone know what the hell is going on? And on the linear spectrum of capitalism to socialism, where exactly are we now? Is there a dictionary word that even describes what we are now? It would be funny, if it weren't such a nightmare.

VII. YOU DON'T GET IT

The real question from here is whether the Obama administration is going to move to bring the financial system back to a place where sanity is restored and the general public can have a say in things or whether the new financial bureaucracy will remain obscure, secretive and hopelessly complex. It might not bode well that Geithner, Obama's Treasury secretary, is one of the architects of the Paulson bailouts; as chief of the New York Fed, he helped orchestrate the Goldman-friendly AIG bailout and the secretive Maiden Lane facilities used to funnel funds to the dying company. Neither did it look good when Geithner — himself a protégé of notorious Goldman alum John Thain, the Merrill Lynch chief who paid out billions in bonuses after the state spent billions bailing out his firm — picked a former Goldman lobbyist named Mark Patterson to be his top aide.

In fact, most of Geithner's early moves reek strongly of Paulsonism. He has continually talked about partnering with private investors to create a so-called "bad bank" that would systemically relieve private lenders of bad assets — the kind of massive, opaque, quasi-private bureaucratic nightmare that Paulson specialized in. Geithner even refloated a Paulson proposal to use TALF, one of the Fed's new facilities, to essentially lend cheap money to hedge funds to invest in troubled banks while practically guaranteeing them enormous profits.

God knows exactly what this does for the taxpayer, but hedge-fund managers sure love the idea. "This is exactly what the financial system needs," said Andrew Feldstein, CEO of Blue Mountain Capital and one of the Morgan Mafia. Strangely, there aren't many people who don't run hedge funds who have expressed anything like that kind of enthusiasm for Geithner's ideas.

As complex as all the finances are, the politics aren't hard to follow. By creating an urgent crisis that can only be solved by those fluent in a language too complex for ordinary people to understand, the Wall Street crowd has turned the vast majority of Americans into non-participants in their own political future. There is a reason it used to be a crime in the Confederate states to teach a slave to read: Literacy is power. In the age of the CDS and CDO, most of us are financial illiterates. By making an already too-complex economy even more complex, Wall Street has used the crisis to effect a historic, revolutionary change in our political system — transforming a democracy into a two-tiered state, one with plugged-in financial bureaucrats above and clueless customers below.

The most galling thing about this financial crisis is that so many Wall Street types think they actually deserve not only their huge bonuses and lavish lifestyles but the awesome political power their own mistakes have left them in possession of. When challenged, they talk about how hard they work, the 90-hour weeks, the stress, the failed marriages, the hemorrhoids and gallstones they all get before they hit 40.

"But wait a minute," you say to them. "No one ever asked you to stay up all night eight days a week trying to get filthy rich shorting what's left of the American auto industry or selling $600 billion in toxic, irredeemable mortgages to ex-strippers on work release and Taco Bell clerks. Actually, come to think of it, why are we even giving taxpayer money to you people? Why are we not throwing your ass in jail instead?"

But before you even finish saying that, they're rolling their eyes, because You Don't Get It. These people were never about anything except turning money into money, in order to get more money; valueswise they're on par with crack addicts, or obsessive sexual deviants who burgle homes to steal panties. Yet these are the people in whose hands our entire political future now rests.

Good luck with that, America. And enjoy tax season.