Friday, December 13, 2013
Go To Original
The so-called “Volcker rule,” adopted Tuesday by the main US bank regulatory agencies, is being hailed by the Obama administration as a major reform that will rein in Wall Street speculation and hold bankers accountable. In fact, it is a toothless measure that will do nothing to stop the speculative and fraudulent activities that triggered the financial meltdown of 2008 and have continued unabated since then.
The rule, named after former Federal Reserve chairman and Obama economic adviser Paul Volcker, is among the most contested parts of the Dodd-Frank financial regulatory overhaul that was signed into law by President Obama in July of 2010. The rule ostensibly bars commercial banks, which benefit from federally guaranteed retail deposits and other government backstops, from speculating with bank funds, including customers’ deposits, on their own accounts—a practice known as proprietary trading.
The 1933 Glass-Steagall Act, which established a legal wall between deposit-taking commercial banks and investment banks/brokerage houses, and led to the breakup of major Wall Street firms such as the House of Morgan, was finally repealed under the Clinton administration and then-Treasury Secretary Lawrence Summers (who later became Obama’s top economic adviser). There is nothing in the Volcker rule or the Dodd-Frank law as a whole that comes close to establishing similar restraints on the banks.
Unlike the aftermath of the 1929 Wall Street crash, the collapse of 2008 has led to no serious reform of the banking system. On the contrary, the regime of taxpayer bailouts and other government subsidies has been used to make the biggest banks even bigger and to strengthen their grip on the economy.
Wall Street has lobbied furiously to either block or eviscerate the new rule, which is the main reason it has taken nearly three-and-a-half years since the enactment of Dodd-Frank for it to be finalized and approved by federal bank regulators. Nearly two-thirds of some 400 rules mandated by Dodd-Frank have yet to be approved, rendering the already largely token provisions of the financial “reform” a dead letter. The delay in implementation is itself a measure of the domination of the banks over the political and regulatory system.
The document approved Tuesday by the Federal Reserve Board, the Securities and Exchange Commission (SEC), the Office of the Comptroller of the Currency (OCC), the Commodity Futures Trading Commission (CFTC) and the Federal Deposit Insurance Corporation (FDIC), spanning 953 pages, nominally restricts proprietary trading. But it incorporates loopholes and exemptions that will enable the banks to continue to make risky bets on stocks, bonds and other securities for their own profit.
The rule delays the date for compliance by the banks to July 2015, three years after the date laid down in the Dodd-Frank law. This is designed to give the banks and their lawyers ample time to devise ways to evade the rule’s provisions and, if they so decide, mount lawsuits to block all or part of the measure.
The government capitulated to the central demand of bankers such as JPMorgan Chase CEO James Dimon, who insisted that the language on proprietary trading permit banks not only to make bets in order to “hedge” their other investments, but to carry out so-called “portfolio hedging.” The latter term refers to the practice of speculating under the cover of reducing risk exposure on broad portfolios of holdings, not just a single asset.
On this basis, banks can justify almost any bet on risky assets such as derivatives as a legitimate exercise in financial prudence. This is precisely how Dimon and JPMorgan defended the bank’s massive bet on derivatives last year that led to a $6.2 billion loss in the so-called “London whale” scandal.
While the rule includes language requiring banks to show that such hedging is tied to specific holdings and is not intended to generate profits, it will not be difficult for banks to get around such caveats.
Moreover, the rule gives banks virtually unrestricted leeway to use “market-making” as a cover for proprietary trading. Banks “make markets” for their brokerage clients by buying and selling stocks, bonds and other securities. In practice, they often acquire large holdings in certain assets even when there is no immediate demand for them from a client.
The new rule allows this practice to continue, as well as activities related to underwriting new stock and bond offerings, by employing deliberately loose language that is more banker-friendly than previous drafts. It states that banks can build up positions to meet “the reasonably expected near-term demands of clients, customers, or counterparties.” [Emphasis added]
Such “market-making” activities generate $40 billion a year in profit for the major US banks. The rule also exempts from limits on proprietary trading government securities, including Treasury bills, state and local government bonds, securities issued by the government-backed mortgage finance companies Fannie Mae and Freddie Mac, and some foreign government bonds. It exempts as well loan securitizations, such as the mortgage-backed securities and collateralized debt obligations that played the central role in the housing market collapse and 2008 Wall Street meltdown.
Gambling on physical commodities such as oil and gold and speculating on spot foreign exchange contracts is specifically allowed under the new rule.
The rule also imposes certain limits on commercial bank investments in hedge funds and private equity firms, although it does not ban such investments.
The measure requires bank CEOs to affirm annually that they have established programs to ensure that their firms are complying with the rule’s provisions. However, in another concession to Wall Street, its does not require that the executives attest that their companies are actually in compliance with the rule.
That the banks consider the new rule relatively harmless was shown by the response of key bank stocks on Tuesday. On a day when the Dow Jones Industrial Average declined by 48 points, Goldman Sachs shares rose 1.2 percent and Morgan Stanley ended the day up 1.3 percent. Bloomberg Businessweek wrote: “Initial analyses of the hedging and market-making restrictions conclude that Wall Street can live with the rule.”
Bloomberg News quoted Richard Kovacevich, the former chairman and chief executive officer of Wells Fargo, as saying, “It appears to be reasonable and one that the industry can live with.”
The Wall Street Journal in an editorial Wednesday was more blunt. The newspaper wrote: “Rest assured banks will find loopholes. And rest assured some of the Volcker rule-writers will find private job opportunities to help with that loophole search once they decide to lay down the burdens of government service.”
In cynically alluding to the incestuous relationship between the banks and the regulatory agencies, and the revolving door between the two, the Journal knows whereof it speaks.
Obliquely referencing the porous language of the Volcker Rule, Janet Yellen, Fed vice chairman and nominee to be the next chairman, said, “Given the absence of a lot of bright-line distinctions, I think supervisors are going to bear, going forward, a very important responsibility to make sure this rule really works as intended.”
She, the Obama administration and the banks know very well that the regulators will do virtually nothing to enforce even the mild provisions of the new rule.
As the Wall Street Journal noted on Thursday, “Consultants wasted no time in starting to work with their banking clients on how to put in place the new rules… Law firm Shearman & Sterling LLP last year hired Donald Lamson, who had been a banking regulator at the OCC [Office of the Comptroller of the Currency] to help focus on Volcker-rule matters… ‘We’re already getting inquiries from our clients,’ said Robert Cook, a partner at Cleary Gottlieb Steen & Hamilton LLP, who until earlier this year was helping write the new financial rules as a lawyer at the SEC.”
Go To Original
A new report on hunger and homelessness paints a devastating picture of the conditions facing millions of workers and poor people in America. The new US Conference of Mayors’ Task Force annual survey highlights the extent and causes of hunger and homelessness in 25 cities for the year between September 1, 2012 and August 31, 2013.
The report finds that 83 percent of the cities surveyed reported an increase in requests for emergency food assistance over the past year, and 52 percent saw an increase in the total number of people experiencing homelessness. Despite this growing need, mayors in the surveyed cities expect assistance for the hungry and homeless to decrease in the coming year.
This social catastrophe is unfolding as the federal government prepares deeper cuts to the food stamp program, now known as SNAP (Supplemental Nutrition Assistance Program), and Congress allows federal extended jobless benefits for 1.3 million long-term unemployed to expire after Christmas.
Helene Schneider, Task Force co-chair and mayor of Santa Barbara, California, stated, “At a time when our cities are bracing for greater demands on emergency providers, most foresee a cut, not an increase, in the resources at their disposal.”
She added, “Nearly three-fourths of the cities expect that resources to provide emergency food assistance will decrease over the next year, and more than one-fourth expect that decrease will be substantial.”
All but four of the surveyed cities reported a rise in emergency food assistance requests, and across all cities this need increased by an average of 7 percent. Among those seeking assistance, 58 percent were persons in families, 21 percent were elderly, and 9 percent were homeless. The working poor made up 43 percent of those requesting food assistance.
The surveyed cities listed unemployment as the leading driver of hunger, followed by low wages, poverty and high housing costs. With unemployment insurance claims jumping to 368,000 in the week that ended December 7, from 300,000 the week before, and the Obama administration and Congress prepared to cut jobless benefits, the need for food assistance is certain to rise even further.
While cities reported a 7 percent average increase in the amount of food distributed during the past year, budgets for emergency food purchases increased by less than 1 percent. As a result, more than one-fifth of those needing emergency food assistance—21 percent—did not receive it.
In all of the 25 cities surveyed, food pantries were forced to reduce the quantity of food people could receive at each visit, and emergency kitchens had to cut back on the amount of food offered per meal. In two-thirds of the cities, people were turned away due to a lack of resources. All but one city expect requests for emergency food assistance to increase over the next year, with 12 cities expecting this increase to be substantial.
After job-creation, city officials point to increasing SNAP benefits as key to reducing hunger. This call for aid was cruelly answered in the negative on November 1, when the federal government began implementing $11 billion in cuts over three years to the food stamp program. This across-the-board cutback is estimated to have reduced benefits to less than $1.40 per person per meal.
Even deeper cuts to SNAP are threatened over the next decade. A Republican proposal to slash $39 billion will be reconciled with a Democratic proposal to cut $4 billion, resulting in a cutback that will inevitably cause increased hunger. The Congressional Budget Office estimates that a $39 billion cut would deny benefits to approximately 3.8 million people in 2014.
City officials in the Mayors’ Task Force Survey were asked to describe the potential impact of such a massive cutback. Some of the responses included:
Charlotte, North Carolina: “Food costs are up eight to 15 percent over the same time last year. Already, 40 percent of the families in our area must choose between paying rent or buying food.”
Dallas, Texas: “The proposed cuts would force over 18,000 Dallas County residents out of the [Texas Food Bank Network] program and eliminate 51.3 million meals provided with SNAP assistance.”
Providence, Rhode Island: If $39 billion is cut, “14,000 people will be terminated from the [SNAP] program statewide, including approximately 10,000 in Providence.”
Cleveland, Ohio: “There is no way that the charitable food system can make up for cuts of this magnitude.”
The extent of homelessness
Based on a single-night count in 3,000 US cities and counties, the Department of Housing and Urban Development (HUD) estimates that more than 610,000 people were homeless across the US on any given night last year. Of these, 65 percent were living in emergency shelters or transitional housing, while 35 percent were living in unsheltered locations such as under bridges, in cars, or in abandoned buildings. Individuals comprise 64 percent of those experiencing homelessness, while families make up 36 percent.
The number of homeless families increased in 64 percent of the cities included in the mayors’ report. Sixty-eight percent of cities cited poverty as the main cause of homelessness among families, followed by lack of affordable housing (60 percent), unemployment (54 percent), eviction (32 percent), family disputes (28 percent), and domestic violence and low-paying jobs (12 percent each).
The surveyed cities were also asked to provide information on the characteristics of their adult homeless populations. The cities reported that, on average, 30 percent of homeless adults were severely mentally ill, 19 percent were employed, 17 percent were physically disabled, 16 percent were victims of domestic violence, 13 percent were veterans, and 3 percent were HIV Positive.
Seventeen of the 25 cities surveyed reported that emergency shelters had to turn away families with children experiencing homelessness because there were no beds available, while two-thirds of the cities were forced to turn away homeless unaccompanied individuals. The unmet need for emergency shelter ranged from 25 percent to 50 percent in eight cities. Fully half of those seeking shelter in Des Moines, Iowa were turned away, while in Phoenix, Arizona, 45 percent of the need for homeless accommodation was not met.
Go To Original
"If you repeat a lie often enough, people will believe it." Sadly, that appears to be the approach that the Obama administration and the mainstream media are taking with the U.S. economy. They seem to believe that if they just keep telling the American people over and over that things are getting better, eventually the American people will believe that it is actually true. On Friday, it was announced that the unemployment rate had fallen to "7 percent", and the mainstream media responded with a mix of euphoria and jubilation. For example, one USA Today article declared that "with today's jobs report, one really can say that our long national post-financial crisis nightmare is over." But is that actually the truth? As you will see below, if you assume that the labor force participation rate in the U.S. is at the long-term average, the unemployment rate in the United States would actually be 11.5 percentinstead of 7 percent. There has been absolutely no employment recovery. The percentage of Americans that are actually working has stayed between 58 and 59 percent for 51 months in a row. But most Americans don't understand these things and they just take whatever the mainstream media tells them as the truth.
And of course the reality of the matter is that we should have seen some sort of an economic recovery by now. Those running our system have literally been mortgaging the future in a desperate attempt to try to pump up our economic numbers. The federal government has been on the greatest debt binge in U.S. history and the Federal Reserve has been printing money like crazed lunatics. All of that "stimulus" should have had some positive short-term effects on the economy.
Sadly, all of those "emergency measures" do not appear to have done much at all. The percentage of Americans that have a job has stayed remarkably flat since the end of 2009, median household income has fallen for five years in a row, and the rate of homeownership in the United States has fallen for eight years in a row. Anyone that claims that the U.S. economy is experiencing a "recovery" is simply not telling the truth. The following are 37 reasons why "the economic recovery of 2013" is a giant lie...
#1 The only reason that the official unemployment rate has been declining over the past couple of years is that the federal government has been pretending that millions upon millions of unemployed Americans no longer want a job and have "left the labor force". As Zero Hedge recently demonstrated, if the labor force participation rate returned to the long-term average of 65.8 percent, the official unemployment rate in the United States would actually be 11.5 percent instead of 7 percent.
#2 The percentage of Americans that are actually working is much lower than it used to be. In November 2000, 64.3 percent of all working age Americans had a job. When Barack Obama first entered the White House,60.6 percent of all working age Americans had a job. Today, only 58.6 percent of all working age Americans have a job. In fact, as you can see from the chart posted below, there has been absolutely no "employment recovery" since the depths of the last recession...
#3 The employment-population ratio has now been under 59 percent for 51 months in a row.
#4 There are 1,148,000 fewer Americans working today than there was in November 2006. Meanwhile, our population has grown by more than 16 million people during that time frame.
#5 The "inactivity rate" for men in their prime working years (25 to 54) has just hit a brand new all-time record high. Does this look like an "economic recovery" to you?...
#6 The number of working age Americans without a job has increased by a total of 27 million since the year 2000.
#7 In November 2007, there were 121.9 million full-time workers in the United States. Today, there are only 116.9 million full-time workers in the United States.
#8 Middle-wage jobs accounted for 60 percent of the jobs lost during the last recession, but they have accounted for only 22 percent of the jobs created since then.
#9 Only about 47 percent of all adults in America have a full-time job at this point.
#10 The ratio of wages to corporate profits in the United States just hit a brand new all-time low.
#11 It is hard to believe, but in America today one out of every ten jobs is now filled by a temp agency.
#12 Approximately one out of every four part-time workers in America is living below the poverty line.
#13 In this economic environment, there is intense competition even for the lowest paying jobs. Wal-Mart recently opened up two new stores in Washington D.C., and more than 23,000 people applied for just 600 positions. That means that only about 2.6 percent of the applicants were ultimately hired. In comparison, Harvard offers admission to 6.1 percentof their applicants.
#14 According to the Social Security Administration, 40 percent of all U.S. workers make less than $20,000 a year.
#15 When Barack Obama took office, the average duration of unemployment in this country was 19.8 weeks. Today, it is 37.2 weeks.
#16 According to the New York Times, long-term unemployment in America is up by 213 percent since 2007.
#17 Thanks to Obama administration policies which are systematically killing off small businesses in the United States, the percentage of self-employed Americans is at an all-time low today.
#18 According to economist Tim Kane, the following is how the number of startup jobs per 1000 Americans breaks down by presidential administration...
Bush Sr.: 11.3
Bush Jr.: 10.8
#19 According to the U.S. Census Bureau, median household income in the United States has fallen for five years in a row.
#20 The rate of homeownership in the United States has fallen for eight years in a row.
#21 Back in 1999, 64.1 percent of all Americans were covered by employment-based health insurance. Today, only 54.9 percent of all Americans are covered by employment-based health insurance, andthanks to Obamacare millions more Americans are now losing their health insurance plans.
#22 As 2003 began, the average price of a gallon of regular gasoline wasabout $1.30. When Barack Obama took office, the average price of a gallon of regular gasoline was $1.85. Today, it is $3.26.
#23 Total consumer credit has risen by a whopping 22 percent over the past three years.
#24 In 2008, the total amount of student loan debt in this country was sitting at about 440 billion dollars. Today, it has shot up to approximately a trillion dollars.
#25 Under Barack Obama, the velocity of money (a very important indicator of economic health) has plunged to a post-World War II low.
#26 Back in the year 2000, our trade deficit with China was 83 billion dollars. In 2008, our trade deficit with China was 268 billion dollars. Last year, it was 315 billion dollars. That was the largest trade deficit that one nation has had with another nation in world history.
#27 The gap between the rich and the poor in the United States is at anall-time record high.
#28 Right now, 1.2 million students that attend public schools in the United States are homeless. That is a brand new all-time record high, and that number has risen by 72 percent since the start of the last recession.
#29 When Barack Obama first entered the White House, there were about 32 million Americans on food stamps. Today, there are more than 47 million Americans on food stamps.
#30 Right now, approximately one out of every five households in the United States is on food stamps.
#31 According to the Survey of Income and Program Participation conducted by the U.S. Census, well over 100 million Americans are enrolled in at least one welfare program run by the federal government.
#32 In 2000, the U.S. government spent 199 billion dollars on Medicaid. In 2008, the U.S. government spent 338 billion dollars on Medicaid. In 2012, the U.S. government spent 417 billion dollars on Medicaid, and now Obamacare is going to add tens of millions more Americans to the Medicaid rolls.
#33 In 2000, the U.S. government spent 219 billion dollars on Medicare. In 2008, the U.S. government spent 462 billion dollars on Medicare. In 2012, the U.S. government spent 560 billion dollars on Medicare, and that number is expected to absolutely skyrocket in the years ahead as the Baby Boomers retire.
#34 According to the most recent numbers from the U.S. Census Bureau, an all-time record high 49.2 percent of all Americans are receiving benefits from at least one government program.
#35 The U.S. government has spent an astounding 3.7 trillion dollars on welfare programs over the past five years.
#36 When Barack Obama was first elected, the U.S. debt to GDP ratio wasunder 70 percent. Today, it is up to 101 percent.
#37 The U.S. national debt is on pace to more than double during the eight years of the Obama administration. In other words, under Barack Obama the U.S. government will accumulate more debt than it did under all of the other presidents in U.S. history combined.
Fortunately, it appears that most Americans are not buying into the propaganda. According to a new CNN survey, the percentage of Americans that believe that the economy is getting worse far exceeds the percentage of Americans that believe that the economy is improving...
Americans views on the state of the nation are turning increasingly sour, according to a new national poll.And a CNN/ORC International survey released Friday also indicates that less than a quarter of the public says that economic conditions are improving, while nearly four in ten say the nation's economy is getting worse.
Forty-one percent of those questioned in the poll say things are going well in the country today, down nine percentage points from April, and the lowest that number has been in CNN polling since February 2012. Fifty-nine percent say things are going badly, up nine points from April.