Wednesday, November 30, 2011

Italy's Debt

Bruce Krasting's view on Italy's bleak future is reported by Business Insider and it makes for thoughtful yet disturbing reading. Italy has the seventh largets economy in the world but default looms and the numbers invovled are too large to be papered over in the Grecian style. Bills are coming due next year and there is no way to pay them. Borroowing more to continue the extend and pretend is the only way to keep this economic model afloat. Germany is refusing to do that. US banks are exposed to likely failure by Italy's new government and so the dominoes topple. I never was a fan of globalization and never less so than now! One has to hope the next economic paradigm works better for the majority of us, whatever it might be.

Some stories in La Stampa suggest that Italy is working on a very big loan package from the IMF. I have no doubt that there are ongoing discussions. There have to be. Either someone puts a finger in the dike or Italy goes tapioca.

That thought is difficult for me to fathom. How could we be so close to the brink? At this point there is zero possibility that Italy can refinance any portion of its $300b of 2012 maturing debt. If there is anyone at the table who still thinks that Italy can pull off a miracle, they are wrong. I’m certain that the finance guys at the ECB and Italian CB understand this. I repeat, there is a zero chance for a market solution for Italy. Either the ECB (aka Germany) steps in and underwrites the debt with some form of Euro bonds or the IMF (aka the USA) steps in with some very serious money.

I have acknowledged in recent articles that I misread the Italian story. I didn't see this coming at the pace that it has. Italian bond yields more than doubled in a month. I was not alone in this very big misread. I believe it has caught everyone flatfooted. Central bankers and finance officials all over the globe are crapping in their pants.

I think the Italian story is make or break. Either this gets fixed or Italy defaults in less than six months. The default option is not really an option that policy makers would consider. If Italy can’t make it, then there will be a very big crashing sound. It would end up taking out most of the global lenders, a fair number of countries would follow into Italy’s vortex. In my opinion a default by Italy is certain to bring a global depression; one that would take many years to crawl out of. The policy makers are aware of this too.

So I say something is brewing. And yes, if there is a plan in the works it must involve the IMF. And yes, it’s going to be big.

Please do not read this and conclude that some headline is coming that will make us all feel happy again. I think headlines are coming. But those headlines are likely to scare the crap out of the markets once the implications are understood.

In the real world of global finance the reality is that any country that is forced to accept an IMF bailout is also blocked from issuing debt in the public markets. IMF (or other supranational debt) is ALWAYS senior to other indebtedness of the country. That’s just the way it works. When Italy borrows money from the IMF it automatically subordinates the existing creditors. Lenders hate this. They will vote with their feet and take a pass at Italian new debt issuance for a long time to come. Once the process starts, it will not end. There will be a snow ball of other creditors. That's exactly what happened in the 80's when Mexico failed; within a year two dozen other countries were forced to their debt knees. (I had a front row seat.)

I don’t see a way out of this box. The liquidity crisis in Italy is scaring us to death, the solution will almost certainly kill us.

Tuesday, November 29, 2011

Europe's Future

The big story in the decline of the world economy this week comes from Europe. Every single commentator has an opinion one way or another. The possibilities are breakup, partial breakup, economic breakup with political union, or best of all in an ironic sense, there is the possibility that France and Germany will reserve the strong economies for a future union which might consist of a handful of strong northern European nations in a newly constituted European Union. The thing is, the problems in Europe are not isolated, we live in a globally connected world and the problems across the Atlantic are going to spread to Japan, China and the US. What we see happening over there will come over here but hopefully we will have found our unity and common sense and will handle the pressures with better outcomes. No outcome is yet written but Europe seems to be about to fall apart. The sources I read and trust the most have been predicting this for more than a year. More essays on the possible fate of the Euro and the union will be bound to follow this week as this fiasco will reach us. For today one report put together by Reuter's:

Germany and France are exploring radical methods of securing deeper and more rapid fiscal integration among euro zone countries, aware that getting broad backing for the necessary treaty changes may not be possible, officials say.

Germany's original plan was to try to secure agreement among all 27 EU countries for a limited treaty change by the end of 2012, making it possible to impose much tighter budget controls over the 17 euro zone countries -- a way of shoring up the region's defenses against the debt crisis.

But in meetings with EU leaders in recent weeks, it has become clear to both German Chancellor Angela Merkel and French President Nicolas Sarkozy that it may not be possible to get all 27 countries on board, EU sources say.

Even if that were possible, it could take a year or more to secure the changes while market attacks on Italy, Spain and now France suggest bold measures are needed within weeks.

As a result, senior French and German civil servants have been exploring other ways of achieving the goal, one being an agreement among just the euro zone countries.

"The goal is for the member states of the common currency to create their own Stability Union and to concentrate on that," German Finance Minister Wolfgang Schaeuble told ARD television on Sunday.

Another option being explored is a separate agreement outside the EU treaty that could involve a core of around 8-10 euro zone countries, officials say.

An even more pressing decision faces euro zone finance ministers when they meet on Tuesday.

Detailed operational rules for the euro zone's bailout fund, the European Financial Stability Facility (EFSF), are ready for approval, documents obtained by Reuters showed.

The approval of the rules will clear the way for the 440 billion euro facility to attract cash from private and public investors to its co-investment funds in coming weeks, which, depending on interest, could multiply the EFSF's resources.

With Germany rigidly opposed to the idea of the ECB providing liquidity to the EFSF or acting as a lender of last resort, the euro zone needs a way of quickly calming markets, where yields on Spanish, Italian and French government benchmark bonds have all been pushed to euro lifetime highs.

Policymakers hope progress toward tougher fiscal rules will also assuage investors. Schaeuble said a Stability Union could be a decisive step to winning more confidence from the markets.

"That means that every euro zone member has to do its homework on its budget discipline. We want to ensure that through treaty changes," he said.


Reuters exclusively reported on November 9 that French and German officials were discussing plans for a radical overhaul of the European Union to establish a more fiscally integrated and possibly smaller euro zone.

"The Germans have made up their minds. They want treaty change and they are doing everything they can to push for it as rapidly as possible," one senior EU official involved in the negotiations told Reuters. "Senior German officials are on the phone at all hours of the day to every European capital."

While Germany and France are convinced that moving toward fiscal union - which could pave the way for jointly issued euro zone bonds and may provide more leeway for the European Central Bank to act forcefully - is the only way to get on top of the debt crisis, some other euro zone countries are unable or unwilling to move so rapidly toward that goal.

Not only Greece, Ireland and Portugal, which are receiving EU/IMF aid, but also Italy and Spain and some east European countries such as Slovakia, would either find it difficult under current economic conditions to meet the budget constraints Germany wants, or simply do not agree with the aim.

Consequently, the French and German negotiators are exploring at least two models for more rapid integration among a limited number of euro zone countries, with the possibility of folding that agreement into the EU treaty at a later stage.


One is based on the Pruem Convention of 2005, also known as Schengen III, a treaty signed among 7 countries outside the EU treaty but which was open to any member state to join and was later acceded to by 5 more EU states plus Norway.

Another option would be to have a purely Franco-German mini-agreement along the lines of the Elysee treaty of 1963 that other euro zone countries could also sign up to, officials say.

"The options are being actively discussed as we speak and things are moving very, very quickly," a European Commission official briefed on the discussions told Reuters.

One source said the aim was to have the outline of an agreement set out before December 9, when EU leaders will meet for their final summit of the year in Brussels.

Sarkozy, who has made two speeches in the past two weeks highlighting the need for more rapid fiscal integration in the euro zone, and has acknowledged that it may be inevitable that a 'two-speed Europe' emerges, is due to make another keynote address on December 1 which could provide a platform for laying out in more detail the ideas that he and Merkel are developing.

A senior German government official denied there were any secret Franco-German negotiations, but emphasized that both countries saw the need for treaty change as pressing and were exploring how to achieve that in the best way possible.

"Germany and France are continuing to focus on proposals for a limited treaty change that can be presented at the EU summit in December," the official said, emphasizing that there was a need to act quickly to get changes in place.

The ECB has bought the bonds of euro zone strugglers in intermittent fashion when they have reached crisis point. Economists say it has to act much more radically to turn the market tide but the central bank, and Germany, has opposed any such move. Commitments to binding fiscal rules by euro zone governments may be the cover it needs to change tack.

"If this bond run is not stopped it will really endanger the stability of the European and even the global financial system. Bold action by the ECB is definitely needed," Peter Bofinger, one of the five "wise men" who formally advise the German government on the economy, told Irish state broadcaster RTE.

Reuters reported a similar possibility on Friday, with euro zone officials saying that if much tighter fiscal integration could be achieved among euro zone states, it would give the ECB more room to maneuver and buy sovereign bonds.

While EU officials are clear about the determination of France and Germany to push for more rapid euro zone integration, some caution that the idea of doing so with fewer than 17 countries via a sideline agreement may be more about applying pressure on the remainder to act.

By threatening that some countries could be left behind if they don't sign up to deeper integration, it may be impossible for a country to say no, fearing that doing so could leave it even more exposed to market pressures.

"Some of this is just part of the posturing you hear -- it's pressure from Germany to go for treaty change as quickly as possible," the official involved in the negotiations said.

"To some extent you have to see these ideas as part of the bargaining chips that are being put on the table."

Monday, November 28, 2011

German Bond Sales

From the Global Research website this essay by Paul Craig Roberts in which he discusses why the recent bond sale by Germany went sour. It struck me as odd that German bonds were failing to find buyers among all European states. Here is the explanation: it was a warning shot by Goldman Sachs (who actually rules the world!) to have Germany do as they are told and prop up European debt so bankers don't lose money. Weird, simple and thus very likely true.

On November 25, two days after a failed German government bond auction in which Germany was unable to sell 35% of its offerings of 10-year bonds, the German finance minister, Wolfgang Schaeuble said that Germany might retreat from its demands that the private banks that hold the troubled sovereign debt from Greece, Italy, and Spain must accept part of the cost of their bailout by writing off some of the debt. The private banks want to avoid any losses either by forcing the Greek, Italian, and Spanish governments to make good on the bonds by imposing extreme austerity on their citizens, or by having the European Central Bank print euros with which to buy the sovereign debt from the private banks. Printing money to make good on debt is contrary to the ECB’s charter and especially frightens Germans, because of the Weimar experience with hyperinflation.

Obviously, the German government got the message from the orchestrated failed bond auction. As I wrote at the time, there is no reason for Germany, with its relatively low debt to GDP ratio compared to the troubled countries, not to be able to sell its bonds.

If Germany’s creditworthiness is in doubt, how can Germany be expected to bail out other countries? Evidence that Germany’s failed bond auction was orchestrated is provided by troubled Italy’s successful bond auction two days later.

Strange, isn’t it. Italy, the largest EU country that requires a bailout of its debt, can still sell its bonds, but Germany, which requires no bailout and which is expected to bear a disproportionate cost of Italy’s, Greece’s and Spain’s bailout, could not sell its bonds.

In my opinion, the failed German bond auction was orchestrated by the US Treasury, by the European Central Bank and EU authorities, and by the private banks that own the troubled sovereign debt.

My opinion is based on the following facts. Goldman Sachs and US banks have guaranteed perhaps one trillion dollars or more of European sovereign debt by selling swaps or insurance against which they have not reserved. The fees the US banks received for guaranteeing the values of European sovereign debt instruments simply went into profits and executive bonuses. This, of course, is what ruined the American insurance giant, AIG, leading to the TARP bailout at US taxpayer expense and Goldman Sachs’ enormous profits.

If any of the European sovereign debt fails, US financial institutions that issued swaps or unfunded guarantees against the debt are on the hook for large sums that they do not have. The reputation of the US financial system probably could not survive its default on the swaps it has issued. Therefore, the failure of European sovereign debt would renew the financial crisis in the US, requiring a new round of bailouts and/or a new round of Federal Reserve “quantitative easing,” that is, the printing of money in order to make good on irresponsible financial instruments, the issue of which enriched a tiny number of executives.

Certainly, President Obama does not want to go into an election year facing this prospect of high profile US financial failure. So, without any doubt, the US Treasury wants Germany out of the way of a European bailout.

The private French, German, and Dutch banks, which appear to hold most of the troubled sovereign debt, don’t want any losses. Either their balance sheets, already ruined by Wall Street’s fraudulent derivatives, cannot stand further losses or they fear the drop in their share prices from lowered earnings due to write-downs of bad sovereign debts. In other words, for these banks big money is involved, which provides an enormous incentive to get the German government out of the way of their profit statements.

The European Central Bank does not like being a lesser entity than the US Federal Reserve and the UK’s Bank of England. The ECB wants the power to be able to undertake “quantitative easing” on its own. The ECB is frustrated by the restrictions put on its powers by the conditions that Germany required in order to give up its own currency and the German central bank’s control over the country’s money supply. The EU authorities want more “unity,” by which is meant less sovereignty of the member countries of the EU. Germany, being the most powerful member of the EU, is in the way of the power that the EU authorities desire to wield.

Thus, the Germans bond auction failure, an orchestrated event to punish Germany and to warn the German government not to obstruct “unity” or loss of individual country sovereignty.

Germany, which has been browbeat since its defeat in World War II, has been made constitutionally incapable of strong leadership. Any sign of German leadership is quickly quelled by dredging up remembrances of the Third Reich. As a consequence, Germany has been pushed into an European Union that intends to destroy the political sovereignty of the member governments, just as Abe Lincoln destroyed the sovereignty of the American states.

Who will rule the New Europe? Obviously, the private European banks and Goldman Sachs.

The new president of the European Central Bank is Mario Draghi. This person was Vice Chairman and Managing Director of Goldman Sachs International and a member of Goldman Sachs’ Management Committee. Draghi was also Italian Executive Director of the World Bank, Governor of the Bank of Italy, a member of the governing council of the European Central Bank, a member of the board of directors of the Bank for International Settlements, and a member of the boards of governors of the International Bank for Reconstruction and Development and the Asian Development Bank, and Chairman of the Financial Stability Board.

Obviously, Draghi is going to protect the power of bankers.

Italy’s new prime minister, who was appointed not elected, was a member of Goldman Sachs Board of International Advisers. Mario Monti was appointed to the European Commission, one of the governing organizations of the EU. Monti is European Chairman of the Trilateral Commission, a US organization that advances American hegemony over the world. Monti is a member of the Bilderberg group and a founding member of the Spinelli group, an organization created in September 2010 to facilitate integration within the EU.

Just as an unelected banker was installed as prime minister of Italy, an unelected banker was installed as prime minister of Greece. Obviously, they are intended to produce the bankers’ solution to the sovereign debt crisis.

Greece’s new appointed prime minister, Lucas Papademos, was Governor of the Bank of Greece. From 2002-2010. He was Vice President of the European Central Bank. He, also, is a member of America’s Trilateral Commission.

Jacques Delors, a founder of the European Union, promised the British Trade Union Congress in 1988 that the European Commission would require governments to introduce pro-labor legislation. Instead, we find the banker-controlled European Commission demanding that European labor bail out the private banks by accepting lower pay, fewer social services, and a later retirement.

The European Union, just like everything else, is merely another scheme to concentrate wealth in a few hands at the expense of European citizens, who are destined, like Americans, to be the serfs of the 21st century.

From Global Research by Paul Craig Roberts

Sunday, November 27, 2011

Peak Oil Illustrated

Here's the thing: warnings about Peak Oil have been coming fast and furious and yet it's not a subject broached by our Leaders. Peak Oil? Whazzat? What Peak Oil is what you will read about here. And before you write this off as conspiracy theory remember this article was published by Bloomberg, the voice of industry and business. Peak Oil doesn't mean oil runs out. It means the cheap easy to access oil has been used up, and peak was believed to have passed in 2006 though the actual date will only be known in a few decades hence. For now understand that cheap energy is drying up and replacements are not going to be easy to discover or develop. Here's why as written by Nariman Gizitdimov:

After 11 years and $39 billion of investment, Exxon Mobil Corp., Royal Dutch Shell Plc (RDSA) and their partners have yet to sell a drop of oil from what was touted as the world’s biggest discovery in four decades.
Centered on a man-made island 70 kilometers (44 miles) from Kazakhstan’s coast, the Kashagan project is just months away from completion, $15 billion over budget and 8 years behind schedule. As the milestone of first oil nears, the Kazakh government is pressuring the group for a commitment on an even- bigger second phase, a project the oil companies are undecided on and one analyst says may not make money.
“The biggest worry is whether the project can ever be profitable given the huge cost escalation and start-up delays,” said Julian Lee, a senior analyst for the Centre for Global Energy Studies in London. It may be “impossible for investors to earn a return on any investment in a second phase before their contract for the field expires” in 2041.
Kashagan, which may hold enough oil to supply the world for six months, has become a cautionary tale for oil companies worldwide as they spend an estimated $20 trillion through 2035 finding supplies in ever more difficult places. Expenses mounted as engineers underestimated the complexity of drilling under a region of the Caspian Sea that’s frozen almost half the year. The government accused the partners, which are allowed to recoup spending before sharing the oil, of inflating costs.
‘Colossal’ Work
Nursultan Nazarbayev, Kazakhstan’s leader-for-life, toured Kashagan in September and declared it a “colossal” work defining his 20-year rule since the Soviet Union’s collapse, which included building a new capital city in the middle of the country’s steppe. When the oil project starts production it will be a milestone for the Central Asian republic of 16.5 million that’s four times the size of Texas.
The project is vital to Nazarbayev because the country relies on oil for 18 percent of gross domestic product and is rebuilding the economy after a devastating banking crisis. Kazakhstan’s national oil company believes expansion can be achieved by 2017. The partners in the project aren’t so ready to rush in.
“We will finish phase one and then we will look at phase two afterwards,” Peter Voser, chief executive officer of The Hague-based Shell, said in an interview at the Group of 20 Summit in Cannes, France. “It’s not immediate.”
Christophe de Margerie, CEO of France’s Total SA (FP), echoed his sentiments, saying “let’s start Kashagan one” when asked about prospects for the second phase.
Lethal Concentration
Kashagan has proved potentially lethal as well as complicated. The crude oil, locked 4,200 meters (2.6 miles) below the seabed in a highly pressurized reservoir, has a high concentration of poisonous “sour gas,” according to North Caspian Operating Co., or NCOC, the venture formed to manage the project.
Gas sensors dot the island, scanning for any leaks of the vapor, which has a 15 percent concentration of flammable hydrogen sulfide. Weekly emergency drills are carried out with the 5,500 people living and working on the biggest of five islands. That number will drop to about 250 when the first phase becomes operational.
The project’s structures are wrapped in impermeable membranes to keep contamination from the Caspian, home to seals and caviar-bearing sturgeon, and surrounded by barriers to fend off ice. The water at the site is only 3 to 6 meters deep and with low salinity and winter temperatures below minus 30 degrees Celsius (minus 22 Fahrenheit), the northern Caspian Sea freezes for almost five months of the year.
Main Partners
The geology, islands and ice and have inflated costs for the first phase to $39 billion from $24 billion estimated by the government in 2008.
The prize for the five main partners is as much as 252,000 barrels of crude a day each from peak output once the second phase is running. That kind of production is growing harder to find worldwide as existing fields age and governments in the Middle East, Russia and Latin America reserve control for state companies.
Exxon, Shell, Total, Rome-based Eni SpA (ENI) and KazMunaiGaz National Co., the state oil company, hold 16.8 percent of NCOC each. Houston-based ConocoPhillips has 8.4 percent and Japan’s Inpex Corp. (1605) 7.6 percent.
‘Big Beasts’
“The fact you had big beasts with equal shares in the project who were thus able to slow down areas where they had different views shows the Kazakh model hasn’t been an optimal one,” Stuart Joyner, an oil industry analyst at Investec Securities Ltd. in London, said. “The cost, complexity and delays have significantly impacted the economics.”
The partners aim to find a “preferred” expansion plan by the end of this year that can be sent to the government for approval, according to NCOC.
“We don’t have clarity either about the time-frame and cost or about the planned production volumes at the second stage,” Kazakh Oil and Gas Minister Sauat Mynbayev said last month.
One option is building more islands, similar to the existing 1.9 square-kilometer (0.7 square mile) manned collection hub and four surrounding structures, NCOC said. The cluster was built from 7 million metric tons of rock carried 300 kilometers from an ice-free port to the south.
Makes Sense
Expanding Kashagan makes more sense economically than halting at the first phase, KazMunaiGaz’s former Chief Executive Officer Kairgeldy Kabyldin said on Oct. 4, before he stepped down from the post. Still, there are signs that some partners may be willing to cut their losses.
ConocoPhillips (COP) Chief Financial Officer Jeff Sheets said on an Oct. 26 conference call that Kashagan is in the “general category of looking around our portfolio in places where we have maybe not long-term strategic good opportunities.”
Oil & Natural Gas Corp., India’s largest energy explorer, and GAIL India Ltd., the nation’s biggest natural-gas distributor, have made a non-binding offer for Exxon Mobil’s 16.8 percent stake in Kashagan, two people with direct knowledge of the matter said in June.
The stake may cost $6 billion, the Financial Chronicle said Oct. 17, citing an unidentified official involved in talks. D.K. Sarraf, managing director of ONGC Videsh Ltd., ONGC’s overseas unit, declined to comment on Kashagan.
Exxon ‘Speculation’
Exxon plans to remain a major investor in Kazakhstan and reports of a Kashagan exit are “speculation,” Charlie Engelmann, a Houston-based spokesman for the Irving, Texas-based company said in a statement.
There are no talks about any partners leaving the project, Andrey Sukhov, Shell’s regional head of taxation in Russia and the Caspian region, said Oct. 21.
Kashagan’s delays already forced one reorganization of the project. In 2008, Rome-based Eni gave up operatorship of the project to the newly formed NCOC, which agreed to pay higher royalties to Kazakhstan.
“After many difficulties and setbacks, and in the face of ballooning costs and much acrimony and debate, the companies had to start over and reallocate roles,” oil industry historian Daniel Yergin said in his book The Quest, published in September. “All of this has infuriated the Kazakh government, which is having to wait years longer that anticipated for Kashagan revenues to flow.”
Double Production
Kashagan may initially produce 370,000 barrels a day, which will rise to 450,000 barrels a day by 2016, Kazakhstan’s Mynbayev said Oct. 4. The expansion would more than triple that to 1.5 million barrels a day, according to President Nazarbayev. That’s almost double Kazakhstan’s current production of about 1.6 million barrels a day, about the same as Libya produced before the revolt against Muammar Qaddafi.
Completing the expansion as early as 2017 is only possible if the partners choose a plan by early next year, KazMunaiGaz National CEO Bolat Akchulakov said in an interview in Astana, the capital, on Oct. 25.
“Phase two won’t move ahead simply, it will be later than people anticipate,” Investec’s Joyner said. “Kashagan will be a million-barrel-a-day field, but from a value perspective it’s been disappointing.”

Saturday, November 26, 2011

Resurgent Left

From naked capitalism this interview about the possible resurgence of of a point of view in politics that may not be progressive as I'd like to think of it, but may be at least something resembling it:

Dean Baker is co-founder of the Center for Economic and Policy Research. He previously was a senior economist at the Economic Policy Institute and an assistant professor of economics at Bucknell University. He has a Ph.D. in economics from the University of Michigan. His latest book, The End of Loser Liberalism, has recently been released to download free of charge on the CEPR website.

Interview conducted by Philip Pilkington, a journalist and writer based in Dublin, Ireland.

Philip Pilkington: The problems we currently face are without doubt, as you say, purely demand-based. Certainly all the evidence I’ve seen – from both sides of the pond – leads to this conclusion too. I know that in the book you say that this too is part of evading the real problems underlying the crisis. As you’ve said in the previous part of the interview, these are largely to do with seriously unbalanced income distribution and a lack of purchasing power among workers. You’ve said in the book that these problems have been generated by the ‘trickle-up’ or ‘supply-side’ economics theories that became popular in the 1970s and were implemented thereafter.

Do you think that your profession – and, for that matter, those commentators and policymakers that they have trained – are ignorant of the problems you highlight in the book because they are so beholden to supply-side theories or do you think that they use their supply-side theories as an ideological mask to make political arguments? If the former is the case, then how on earth has economics become such an irrelevant and dogmatic discipline? And if the latter is the case the how has the profession become so corrupted?

Dean Baker: Just to be clear, the prevailing dogma in the profession is not exactly supply-side as people ordinarily think about it. Rather, it is the idea that monetary policy can deal with any demand shortfalls. The idea here is that if consumers are not spending enough to keep the economy near its full employment level of output, then we can simply have the Fed lower interest rates until it sparks enough consumption and investment that it brings the economy back to full employment.

There was sort of a neat test of this with Clinton’s deficit reduction in the 90s, where the mainstream of the profession saw one thing and my take was quite different. Their view was that we got the deficit down – which reduces demand – but then interest rates fell and we made up the gap. While we did make up the gap, it was not done in a sustainable way. It was the result of a stock market bubble driven consumption boom. There was little appreciation of the fact that this was a bad way to go at the time and there is still little appreciation in the economics profession of the fact that the 90s expansion was not on a sustainable course.

In terms of why economists believe what they do, I think it is a combination of ideology and corruption, although the sort of crude corruption that got highlighted in Inside Job, with people just selling their expertise for dollars, is rare. The idea that monetary policy could deal with any demand shortfalls was pretty widely held across the profession until recently in part because it was not so obviously wrong. There is no doubt that lowering interest rate can boost the economy and monetary policy was reasonably effective in bringing the US economy quickly back to something near full employment in the 80s after the steep downturn in 1981-82. There was a similar story in Europe as well.

Now part of the picture depends on what is considered full employment. We had unemployment rates in the best years of the 80s that would have seemed horrible from the perspective of the late 60s. (The unemployment never fell below 5.0 percent for any month in the decade. By contrast, it was averaged just 3.5 percent for all of 1979.) However, economists justified the higher unemployment rate by saying that the structural rate of unemployment had risen, meaning that we had more people who would be unemployed because they lacked the skills for the jobs available or they didn’t live where the new jobs were being created. This structural unemployment story was considerably more important in Europe than the US, with many countries seeing their unemployment rate rise from around 2-3 percent in the 70s to near double-digit levels in the 80s and 90s. Anyhow, this allowed them to define away any demand-side problem.

In the US case, it was held as an absolute article of faith that the unemployment rate could not get below a range estimated to be between 5.6 percent to 6.4 percent without triggering inflation. It was remarkable that Greenspan kept interest rates low so that the unemployment could fall to first 5.0 percent in 1997 and then 4.0 percent in 2000. He never would have done this had he been a conventional economist. (Two Clinton appointees to the Fed argued with Greenspan at the time that he should raise rates to head off inflation.)

My take-away from this experience is that we had demand side unemployment in the early 90s that eventually went away as result of the demand generated by the stock bubble. The conventional economists’ view of this experience is that something changed in the U.S. economy in the mid-90s that allowed the unemployment rate to fall to lower levels.

If we ask why economists would believe something about the world that seems to fly in the face of evidence, my answer would be that it is the easiest path for them. The vast majority of economists have no interest in upsetting the apple cart. They wanted to be economists because it is a relatively well-paying and prestigious profession. The way you move ahead in the profession is you repeat what the people who are more prominent than you are saying. This carries no risk. If they are right you can share in the glory. If they end up being wrong, then you have the “who could have known?” excuse.

In terms of the leading lights of the profession, they have no reason to change what they are saying because no one is ever going to cause them to lose their job or even their standing because they are wrong. How many people even missed a promotion because they failed to recognize the largest economic crisis since the Great Depression? Since the status quo position in the profession fits in well with most powerful interest groups, and everyone has been in the habit of repeating the same lines, there is little real pressure for change.

This is a depressing description of the profession, but people should understand that economics as practiced in the world cannot be seen as a neutral science. The deck is definitely stacked. Again, it is not typically in the form of someone getting money to push a particular line, it is more attributable to the way the profession has developed over the last five decades.

PP: What I don’t understand is this idea that deficit reduction leads to lower interest rates. My understanding is that central banks in modern economies have full control over the interest rate – they set it through open market operations. You can see this today in the US and the UK, who are running large deficits and low interest rates. But you could also see it in Japan in 90s and 00s. To the best of knowledge, even before they undertook QE in Japan there were low interest rates mirroring high deficits. Another example is during the 1974-75 recession in the US. Budget deficits soared but interest rates remained relatively low.

I could go on and on, but my key point is that modern central banks seem to have full control over interest rates through open market operations.

Tell me, do you adhere to this “deficit leads to higher interest rates” view? What’s it all about? I can’t make any sense of it.

DB: The argument would be that deficits at full employment will lead to higher interest rates. It is always hard to measure this one since every time the economy goes into a downturn the deficit increases. A good statistical test would control for the business cycle, but our controls are not perfect. There is also an issue of expectations. If the deficit is low today, but expected to be very high in a couple of years, then we would expect this to lead to higher interest rates today.

Furthermore, if we want a fair test we have to pull out the impact of monetary policy. If the Fed raises interest rates because we have a large budget deficit, then the high interest rates are, at least immediately, the result of Fed policy, not the budget deficit.

I think there is some truth to this story, but it is hugely overstated. The basic story is that if we are at full employment, then running large deficits puts strains on resources. We are running out of workers, factories and other producers are operating at capacity, there are shortages of housing and commercial property. This will lead to upward pressure on prices (i.e. inflation) and upward pressure on interest rates. I think the story holds at full employment, but the economy has rarely been close to full employment in my view over the last three decades. Certainly we were in 2000, perhaps in 2007, but not on many other occasions. This means that larger deficits would not have had much impact on interest rates, assuming the Fed did not deliberately push them higher.

PP: Okay. Sorry to get a bit wonky here, but I think its worthwhile having this discussion.

I’d tend to agree with you that the underlying argument is usually one about inflation. When you really push a policy wonk on the issue they always end up saying that inflation is the key danger. But in your book you seem to indicate that aggregate demand – that is, overall spending power – in the Clinton and Bush years was largely driven by bubbles and massive private sector credit expansion (manifesting as negative savings rates).

If this is true, an increase in government spending in these years may have softened the need for bubbles and household credit expansion, right? What do you think? Were the debates in these years really upside-down?

DB: Absolutely, the obsession with budget deficits under both Clinton and Bush was entirely misplaced. Deficits could occur for bad reasons, as certainly was the case with Bush tax cuts that disproportionately benefited the wealthy, and wars that did not need to be fought, were not good reasons to run deficits. However, the deficits themselves were not a problem. If this money had gone to build up the infrastructure or to educate our children we would have been made much richer as a result of the deficits.

As it was, if we had balanced the budget in the Bush years, the impact would likely have been primarily weaker growth and more unemployment. There was no obvious alternative source of demand in these years. Of course if deficit reduction was accompanied by a serious effort to push down the dollar, and thereby boost net exports, then it could have created many jobs.

But the push to lower the dollar was independent of the budget deficit. There clearly was little political will to reduce the value of the dollar. That would not have changed if the budget deficit had been lower.

PP: Moving on, in the book you make the claim that had the financial system been allowed to melt down we would not actually have ended up in another Great Depression. This is not to say that you don’t recognise that letting the financial system melt down would have caused a lot of problems – for banks, of course, but also for pension funds and the like – but you say that those in charge of the bailouts exaggerated the importance of the financial sector. Could you explain briefly what you mean by this? And what do you think should have been done at the time of the bailouts?

DB: The point here is that we know how to reflate an economy. Massive government spending will do it. It got us out of the Great Depression, although not until World War II created the political consensus for the level of spending that was necessary to actually do the job.

A financial collapse cannot condemn us to a decade of stagnation and high unemployment. That only comes about from a prolonged period of political failure. If we had allowed the banks to collapse in the financial panic of 2008 then we would have had the opportunity to pick up the pieces and get the economy back on track with a massive stimulus program.

Of course it was best to not let the banks collapse. However the bailout should have come with real conditions that would have ensured the financial system was fundamentally restructured. This would have included breaking up the too big to fail banks (on a clear timetable, not necessarily at that time), serious caps on compensation, a commitment to principle write-downs and other real conditions.

At that time the banks were desperate. Without a big dose of public money they would almost certainly have been insolvent, so they would have had little choice but to accept whatever conditions were imposed. As it was, they almost got President Obama thanking them for taking taxpayer dollars in the bailout.

PP: Any ideas about what could be done with the banks now? Or is the damage already done?

DB: We still need to reform and downsize the financial sector. We don’t have the same leverage over the banks as we did at the peak of the crisis when we could have slapped whatever conditions we wanted on the loans and guarantees they needed to stay alive, but Congress can still pass laws that will rein in the industry.

At the top of the list is a financial speculation tax. A modest tax on financial transactions will do much to reduce the rents in the industry and to eliminate or drastically reduce short-term trading that serves no productive purpose. It will also raise a ton of money.

The second thing is breaking up the too big to fail banks. There is no justification for allowing banks to be able to borrow at below market interest rates because they enjoy an implicit government guarantee.

The third item on my list would be re-instating a Glass-Steagall type separation between commercial and investment banking. The Volcker rule, which limits proprietary trading by banks with insured deposits, was a step in the right direction. However it looks as though the industry is using the rule-making process to turn the law into Swiss cheese. It is likely that most banks will be able to find loopholes that will allow them to do as much proprietary banking as they want.

Anyhow, these would be my top three reforms. Politically, all of them would be very tough sells right now. By contrast, at the peak of the crisis, the industry would have voluntarily agreed to the last two in order to get the money they needed to stay alive.

PP: You write in the book that the idea that the banks repaid all the money from TARP is misleading. Could you explain this, because this myth is very prevalent in the mainstream media?

DB: Yes, this is really kind of a joke. The banks got loans at way below market interest rates from the government, and we are supposed be grateful that they repaid the loans? The difference between the market interest rate and the rate they actually paid amounted to a huge subsidy. This is something that anyone with even a passing familiarity with business or economics would recognize, which is why it is so insulting when political figures go around yapping about how the money was repaid with interest.

To see this point, suppose the government gives me a 30-year mortgage at 1 percent interest. If I make all my payments and pay off the mortgage has the government made money? By the logic of the politicians claiming that we profited by the bailout, the answer is yes.

A serious assessment would look at what the market rate for these loans was at the time they were made. To take one example, just before we lent $5 billion to Goldman through TARP, Warren Buffet lent $5 billion himself. He got twice the interest and a much more generous deal on warrants. Plus he knows that it was likely that the government would bail out Goldman if it got in trouble.

Elizabeth Warren commissioned a study of the implicit subsidies in the bailouts when she was head of the TARP oversight panel. As I recall, it came to over $100 billion on just the first batch of TARP loans to the large banks. This didn’t count the value of later TARP lending, the much larger lending programs from the Fed, nor the extensive set of guarantees provided by the Fed, Treasury, and the FDIC.

All of these commitments involved enormous subsidies. In the business world firms pay huge amounts of money if they want their debt to be guaranteed. And everyone understands that a below market loan is essentially a gift. That is why it is so insulting when they try to imply that the public has profited from these loans.

You can make the argument that it was good policy to subsidize the financial industry to get through the crisis, but to pretend that we did not subsidize them is just dishonest.

PP: Finally, and I think this is the biggest question of them all. It seems to me that today only those on the left have anything to say about the economy. The right – and the so-called centre – talk themselves in circles. Some come across as lunatics; others simply appear to be deeply confused about what is going on today. So, I guess the left is in a pretty good position in that all that they had been warning about for years – from the dangers of wealth inequality to the very real existence of major financial instability – has come to pass in an extremely apocalyptic way.

Yet, their prescriptions are shunned and they are still largely ignored. Minsky’s name is mumbled from time to time – rarely coherently, from what I can see – and Marx and Keynes are regularly invoked in the popular financial press, but it all seems to be nothing but parlour games. While what the left may have said a few years ago might have been ignored and even ridiculed, today it is treated like a sort of carnival sideshow: those supposedly in-the-know come along for a gawk but once they’ve picked up enough of the fancy ideas to come across as trendy at the dinner table they’re back to supporting contradictory and unsustainable policies and engaging in the very speculation and risk that they tut-tut.

What are progressive people to do in such circumstances? The whole thing has become quite bizarre. We’re still on the fringes and yet, at the very same moment, we’re taking up centre stage. How do you navigate in such a world? What do you think are the most effective interventions? In short: what are we supposed to do from here on in?

DB: Yes, what is to be done?

Well, the first thing is to be clear on where we are. We are up against an opposition that has almost complete control of the public debate. If you just stand back for a moment: here we are with 26 million people unemployed, underemployed or out of the work force altogether, millions of people facing the loss of their home, a huge cohort of baby boomers on the edge of retirement with nothing to support themselves but their Social Security and the topic that stands at the center of national debate is reducing the deficit. This is close to crazy.

What is even more incredible is how we got here. We have people who have literally been wrong about everything having to do with the economy over the last 5 years. They totally missed the $8 trillion housing bubble, the largest asset bubble in the history of the world. They were yelling about the budget deficit in 2006 and 2007 as the collapse of the housing bubble was about to explode the economy.

Then they underestimated the severity of the downturn, telling us the economy was going to bounce right back. And, then they got the interest rate story wrong. They told us that the large budget deficits caused by the downturn would lead the bond vigilantes to send interest rates through the roof. Instead they fell through the floor.

So who gets listened to in national debates, those who have been consistently right on all the key points, or those who have gotten things as wrong as you possibly can? Okay, we know the answer to that, but this knowledge is important. We are dealing with people who have no argument; they are relying on their control of public debate to get their way.

Fortunately, we are better situated to contest this now than we were 15 or 20 years ago because of the Internet. We have ways to reach a much larger audience and expose this nonsense than was true in 1990 or even 2000. We have to find creative ways to embarrass these folks.

I think the media is central to this story. There are a large number of reporters who like to believe that they are doing a good job. They can be shamed. When they get the facts wrong, we can expose it. When they rely exclusively on a narrow group of ‘experts’ all of whom want to cut Social Security and Medicare, we can expose that as well. This is the reason that I have my Beat the Press blog. I find that there are many reporters (not all) who will try to be reasonable if you can show a clear bias in their reporting. It shouldn’t be the case that getting everything wrong about the economy over the last decade is the main criterion for being taken seriously in policy debates.

Of course we have to push policies that are clear and simple and have real impact. This is one of the reasons that I am huge fan of a financial speculation tax. This is simple and makes so much sense to people. We impose a small tax that would be almost invisible to any person who uses the financial markets for their normal purposes (e.g. saving for retirement or borrowing for a business), but would totally nail those who buying and selling by the day or by the hour. And, it raises a ton of money to keep the deficit hawks happy.

Now that we actually have a bill that has been introduced in Congress and even scored by the Joint Tax Committee ($350 billion over 10 years), it will be great to see how long the budget hawk types can pretend that it doesn’t exist.

More generally we have to constantly look for points of entry where we can find politically feasible policies that make a difference and also make a point. The key policy fulcrums, areas like the Fed, dollar policy, and trade policy, are going to be out of reach for a while. But while we educate people about the importance of these policies we can try to push policies at the state and local level that can have an impact.

I am huge fan of work sharing, which can be done at the state level. Imagine that we had gone the route that Germany did. It had no better growth than the US but its unemployment is now half a percentage point lower than it was at the start of the downturn. States can go down this road, maybe not as far Germany, but certainly much further than they have so far.

We can also push at patent protection for prescription drugs. A lot of states have borders with Canada. Getting drugs there is a great thing to do. If state or local governments can do anything to institutionalize an importation process – pressing the limits of the law – then it can save money, provide people with needed drugs, and teach everyone that drugs are expensive because the government gives Pfizer and Merck patent monopolies.

In the same vein, we can try to promote trade in health care. There are top quality medical facilities in India, Singapore and elsewhere that can perform medical procedures at one fifth or one tenth the cost as in the United States. This can mean paying $20,000 for a procedure that might cost $200,000 here. If patients can take advantage of these facilities and share the savings with the government or private insurers than more and more people will come to recognize that health care in the United States is expensive because the government is protecting the incomes of highly paid medical specialists, hospitals, medical instrument manufacturers and drug companies. This is a great place where we can clearly use the market against the one percent.

It is always possible to find ways to make a point; to advance a progressive agenda. We have to be fast and we have to be opportunistic. But most of all we have to stop working from a script drafted by the right. The right can get mass public support for a pro-market agenda. They cannot get mass public support for an agenda that explicitly uses the government to redistribute income upward to the one percent. That has been the policy for the last three decades. Our job is to make sure that everyone knows it.

Friday, November 25, 2011

Chomsky On The Occupiers

Last week marked the second month of the Occupy Wall Street movement which has been harassed and suppressed by municipalities seeking conformity at a time of upheaval. Noam Chomsky is the right voice to put the Occupy movement in this election year, in the correct historical perspective.

If the bonds and associations being established in these remarkable events can be sustained through a long, hard period ahead, victories don't come quickly, the Occupy protests could mark a significant moment in American history.

I've never seen anything quite like the Occupy movement in scale and character, here and worldwide. The Occupy outposts are trying to create cooperative communities that just might be the basis for the kinds of lasting organizations necessary to overcome the barriers ahead and the backlash that's already coming.

That the Occupy movement is unprecedented seems appropriate because this is an unprecedented era, not just at this moment but since the 1970s.

The 1970s marked a turning point for the United States. Since the country began, it had been a developing society, not always in very pretty ways, but with general progress toward industrialization and wealth.

Even in dark times, the expectation was that the progress would continue. I'm just old enough to remember the Great Depression. By the mid-1930s, even though the situation was objectively much harsher than today, the spirit was quite different.

A militant labor movement was organizing, the CIO (Congress of Industrial Organizations) and others, and workers were staging sit-down strikes, just one step from taking over the factories and running them themselves.

Under popular pressure, New Deal legislation was passed. The prevailing sense was that we would get out of the hard times.

Now there's a sense of hopelessness, sometimes despair. This is quite new in our history. During the 1930s, working people could anticipate that the jobs would come back. Today, if you're a worker in manufacturing, with unemployment practically at Depression levels, you know that those jobs may be gone forever if current policies persist.

That change in the American outlook has evolved since the 1970s. In a reversal, several centuries of industrialization turned to de-industrialization. Of course manufacturing continued, but overseas, very profitable, though harmful to the workforce.

The economy shifted to financialization. Financial institutions expanded enormously. A vicious cycle between finance and politics accelerated. Increasingly, wealth concentrated in the financial sector. Politicians, faced with the rising cost of campaigns, were driven ever deeper into the pockets of wealthy backers.

And the politicians rewarded them with policies favorable to Wall Street: deregulation, tax changes, relaxation of rules of corporate governance, which intensified the vicious cycle. Collapse was inevitable. In 2008, the government once again came to the rescue of Wall Street firms presumably too big to fail, with leaders too big to jail.

Today, for the one-tenth of 1 percent of the population who benefited most from these decades of greed and deceit, everything is fine.

In 2005, Citigroup, which, by the way, has repeatedly been saved by government bailouts, saw the wealthy as a growth opportunity. The bank released a brochure for investors that urged them to put their money into something called the Plutonomy Index, which identified stocks in companies that cater to the luxury market.

"The world is dividing into two blocs, the plutonomy and the rest," Citigroup summarized. "The U.S., U.K. and Canada are the key plutonomies, economies powered by the wealthy."

As for the non-rich, they're sometimes called the precariat, people who live a precarious existence at the periphery of society. The "periphery" however, has become a substantial proportion of the population in the U.S. and elsewhere.

So we have the plutonomy and the precariat: the 1 percent and the 99 percent, as Occupy sees it, not literal numbers, but the right picture.

The historic reversal in people's confidence about the future is a reflection of tendencies that could become irreversible. The Occupy protests are the first major popular reaction that could change the dynamic.

I've kept to domestic issues. But two dangerous developments in the international arena overshadow everything else.

For the first time in human history, there are real threats to the survival of the human species. Since 1945 we have had nuclear weapons, and it seems a miracle we have survived them. But policies of the Obama administration and its allies are encouraging escalation.

The other threat, of course, is environmental catastrophe. Practically every country in the world is taking at least halting steps to do something about it. The United States is taking steps backward. A propaganda system, openly acknowledged by the business community, declares that climate change is all a liberal hoax: Why pay attention to these scientists?

If this intransigence continues in the richest, most powerful country in the world, the catastrophe won't be averted.

Something must be done in a disciplined, sustained way, and soon. It won't be easy to proceed. There will be hardships and failures, it's inevitable. But unless the process that's taking place here and elsewhere in the country and around the world continues to grow and becomes a major force in society and politics, the chances for a decent future are bleak.

You can't achieve significant initiatives without a large, active, popular base. It's necessary to get out into the country and help people understand what the Occupy movement is about, what they themselves can do, and what the consequences are of not doing anything.

Organizing such a base involves education and activism. Education doesn't mean telling people what to believe, it means learning from them and with them.

Karl Marx said, “The task is not just to understand the world but to change it.” A variant to keep in mind is that if you want to change the world you'd better try to understand it. That doesn't mean listening to a talk or reading a book, though that's helpful sometimes. You learn from participating. You learn from others. You learn from the people you're trying to organize. We all have to gain the understanding and the experience to formulate and implement ideas.

The most exciting aspect of the Occupy movement is the construction of the linkages that are taking place all over. If they can be sustained and expanded, Occupy can lead to dedicated efforts to set society on a more humane course.

Thursday, November 24, 2011

Socialism For The Rich

As a Thanksgiving gift for those that don't need the help, this report from Huffington Post on the amazing discovery that one percenters get help from taxpayers that the taxpayers themselves could use but don't get. The one percenters have much to give thanks for, not least the stupidity of those that hope to one day join their ranks and thus fear to protest today against these rank injustices. This situation cannot persist, surely.

Millionaires are receiving billions in taxpayer-funded support every year that helps them pay for everything from child care to bad debts to boats and vacation homes, according to a report released last week by Sen. Tom Coburn.

People who individually earned more than a million dollars in 2009 even managed to collect a total of nearly $21 million in unemployment insurance.

"From tax write-offs for gambling losses, vacation homes, and luxury yachts to subsidies for their ranches and estates, the government is subsidizing the lifestyles of the rich and famous," wrote Coburn, an Oklahoma Republican, in an accompanying letter. "Multimillionaires are even receiving government checks for not working. This welfare for the well-off -- costing billions of dollars a year -- is being paid for with the taxes of the less fortunate."

Calling the giveaways "sheer Washington stupidity," Coburn detailed in the study more than $30 billion a year that comes out of the U.S. Treasury to aid people who make more than a million a year.

For Coburn, who describes his survey as the first-ever compilation of federal aid for the richest, such a startling figure makes no sense when most of the country is struggling to get by. He also thinks it reveals some sensible targets for Congress' stymied debt-trimming super committee.

"Even in these difficult times, the United States remains a land of opportunity and not everyone is in need of government handouts," wrote Coburn in the accompanying letter.

"The income of the wealthiest 1 percent of Americans has risen dramatically over the last decade. Yet, the federal government lavishes these millionaires with billions of dollars in giveaways and tax breaks," he wrote, referring to the growing income gap recently documented in stark fashion by the Congressional Budget Office.

"The government's social safety net, which has long existed to catch those who are down and help them get back up, is now being used as a hammock by some millionaires, some who are paying less taxes than average middle class families," Coburn contended.

And what the report "reveals is sheer Washington stupidity with government policies pampering the wealthy costing taxpayers billions of dollars every year," Coburn argued.

Coburn totaled up all the federal money for millionaires over several years that his office could find. Among the handouts for the well-heeled are:

•$18.15 million in child care tax credits
•$74 million in unemployment checks
•$89 million for preservation of ranches and estates
•$316 million in farm subsidies
•$608 million in business entertainment deductions
•$9 billion in retirement checks
•$21 billion in gambling losses
•$28 billion in mortgage breaks for mansions, vacation homes and yachts
Some of the payments, such as for Social Security and Medicare, stem from payroll taxes and are not means-tested when they are paid out. Advocates of such payments believe the government made a promise to individuals that it must keep, regardless of their wealth.

Some other payments, such as the millions received by the wealthy to preserve land or to use alternative energy sources, arise from programs that proponents consider beneficial overall, even if the rich get the money.

But Coburn doesn't see much justification for these payments, considering how well the wealthy have done over the last 30 years compared to everyone else. "Fleecing the taxpayer while contributing nothing is not the American way," he wrote.

He also sees policies that help the rich avoid taxes as government-sanctioned redistribution of wealth.

"Americans are generous and do not want to see their fellow citizens go without basic necessities. Likewise, we expect everyone to contribute and to demonstrate personal responsibility," Coburn wrote.

"Government policies intended to mainstream wealth redistribution are undermining these principles. The tragic irony is the wealth in these cases is trickling up rather than down the economic ladder," he continued. "The cost of this largess will thus be shared by those struggling today and the next generation who will inherit $15 trillion of debt that threatens the future of the American Dream."

Coburn does not argue that taxes should be raised on the wealthy, however. Simply ending giveaways for people who don't need them would help, and he recommends limiting or cutting payments to millionaires in the safety net programs; ending farm and conservation payments to the rich; means-testing tax breaks and other payouts; and reforming

Wednesday, November 23, 2011

Arkansas Mortgage Mess

Mortgage Foreclosure problems are cropping up in numbers worth reporting in Arkansas now according to this story by Ethan Nobles, with First Arkansas News. The particulars are peculiar to Arkansas but the general notion of bankers and their representatives flouting the laws of the land are not unhappily. And guess what? These messes are screwing up titles for new purchasers, a problem that is becoming endemic to the housing industry.

A Chapter 13 bankruptcy case in the Eastern District of Arkansas, Jonesboro Division, has caused title companies in the state to investigate foreclosure sales to determine if the properties were properly taken back by lenders.

In a Sept. 29 decision, the court held that a lender not authorized to do business in the state of Arkansas was not in compliance with the state’s non-judicial foreclosure laws. That case, In Re Johnson, concerned objections filed by J.P. Morgan Chase Bank and the related Chase Home Finance regarding the confirmation of three Chapter 13 plans for debtors who had lost their homes to the lenders through non-judicial foreclosure proceedings.

The non-judicial foreclosure has become the preferred method for taking back homes from debtors who have defaulted on mortgages. It is an abbreviated process that is less expensive than a traditional judicial foreclosure proceeding that is litigated in the courts system.

J.P. Morgan, in the In Re Johnson case, objected to the Chapter 13 plans of which the debtors sought court approval. A Chapter 13 bankruptcy plan is designed to pay creditors at least a percentage of what they are owed by the debtors over a period of years. J.P. Morgan argued that it was owed the costs and fees it had incurred through the non-judicial foreclosure proceedings and those were not considered in the plans.

The court sided with the debtors, stating J.P. Morgan was not in compliance with Arkansas’ non-judicial foreclosure statutes as it was not authorized to do business in Arkansas. The court ruled the debtors did not owe the foreclosure fees and costs sought by J.P. Morgan. Furthermore, the court ruled J.P. Morgan owed the debtors’ attorneys fees incurred in litigating the issue.

Meanwhile, Little Rock Realtor Allen Trammel said that — in the past week — two of his clients who purchased homes that had been taken back through the state’s non-judicial foreclosure laws were in limbo. He said the explanation given to him in each instance is that title companies are typically refusing to issue title insurance in those transfers until they can determine whether the homes were taken in compliance with state law.

Bob Balhorn, another Little Rock Realtor, confirmed that the In Re Johnson case has put the brakes on sales of the foreclosed properties at issue.

The issuance of title insurance is, quite often, a prerequisite when property is transferred from one owner to another. When that insurance is not issued, questions arise as to validity of the transaction — can the seller make a valid transfer to the property that will not be challenged by another party in the future?

A First Arkansas News reader who requested anonymity stated his family has purchased a home in the state that was taken through a non-judicial foreclosure proceeding. The reader reported that the sale has been put on hold due to concern over the validity of the foreclosure and there is no clear indication as to when the transaction will close.

Megan Skarda, an escrow officer with Associates Closing & Title in Little Rock, addressed the issue in a letter sent out on Oct. 21 to companies and individuals involved in the sales of homes taken through non-judicial foreclosure.

“As I am sure you all have encountered recently, a decision with the bankruptcy court has caused us to do a lot of new research on non-judicial foreclosed properties that are currently under (sales) contract(s),” Skarda stated in the letter, adding her company is trying to decide if those properties have been taken in compliance with state law.

In cases where lenders were not authorized to do business in Arkansas, Skarda said it may be necessary for those organizations to take the properties through traditional, judicial foreclosures.

Skarda attached to the letter a opinion from her company’s attorneys. Those attorneys are not identified in the letter, but their comments do shed some light on what a lender must do to be authorized to do business in Arkansas, clarify the ramifications of the bankruptcy case and raise the possibility of an appeal. The complete and verbatim advise from those lawyers is as follows:
Two weeks ago an Opinion and Order was rendered in the Eastern District of Arkansas Bankruptcy Court. Said Order was issued to resolve three Objection to Confirmation hearings wherein the facts and arguments were all the same. Briefly stated the Judge determined that entities that wish to avail themselves of the Arkansas Statutory Foreclosure Act (ASFA) i.e. foreclose property non-judicially, must be registered with the Arkansas Secretary of State for the foreclosure to be valid. The Order disallowed the inclusion of foreclosure fees in the debtor’s plan. The fallout from this Order is that national title insurance underwriters are declining to insure the validity of title following a non-judicial foreclosure when the entity seeking relief is not registered with the Arkansas Secretary of State or the Arkansas State Banking Department.

We are working diligently with title underwriters, the Secretary of State, state legal authorities, and the law firm mounting an appeal of what we believe is a clearly erroneous order. Notices will be generated on all new Arkansas referrals when the entity seeking or having obtained foreclosure falls into this category. We will be updating you as the matter goes forward; however we will need your direction as to how you wish to proceed with each file.

Tuesday, November 22, 2011

Sweden Versus The Banks

As far as bailing out banks goes the US has been skunked by Nordic Socialists in Sweden, reports Johan Carlstrom in Stockholm for the not-yet-socialist Bloomberg's. Weird but true, Sweden has it figured out perhaps because they have leaders who lead and take care of their people. Whata concept!

Sweden's bank rescue model has protected taxpayers, turned a profit and left the Nordic country less indebted than when the financial crisis started in 2007.

It’s the opposite of what’s happening in the U.K., where the government’s debt burden has doubled in the past four years and taxpayers are still footing the bill to bail out banks.

“In 2006, when I became prime minister, the U.K. and Sweden had the same ratio of national debt to gross domestic product,” Swedish Prime Minister Fredrik Reinfeldt, 46, said in an interview. “The U.K. has now doubled and Sweden has gone below 40 percent and this is linked to dealing with the banks.”

As lenders across the globe resist stricter regulatory controls they say will hurt earnings, Sweden’s commitment to enforcing rigorous standards has paid off. Companies like Stockholm-based Nordea Bank AB (NDA) are better capitalized than most of their European and U.S. rivals, and have better access to funding markets and a lower risk of default. Tougher controls enacted during the Swedish banking crisis of the 1990s also have protected the state budget, which will be in surplus this year.

“We introduced a lot of fees in the system, we increased transparency,” Reinfeldt said Nov. 8 during an interview in Stockholm’s Rosenbad, his Art Nouveau-style waterfront office building that used to be the headquarters of Nordiska Kreditbanken before it was acquired in 1917 by a local competitor. The corridors leading to Reinfeldt’s office are hung with pictures of Swedish cabinets going back to the 19th century.

Cover Risk
“We increased regulations to secure that they have better control, that they cover their own risk,” said Reinfeldt, who did his compulsory military service as an Arctic ranger and holds a degree in business administration and economics from Stockholm University. “We have a surplus when it comes to taxpayers, which distinguishes Sweden from many other countries.”

Sweden’s debt will shrink to 36.3 percent of GDP this year from 40.2 percent in 2007. In the U.K., the public debt burden will widen to 84 percent in 2011 from 44.4 percent, the European Commission estimates.

The Nordic nation’s economy will expand 4.4 percent this year and 3.8 percent in 2012, the International Monetary Fund said in September. Output in the U.K. will grow 1.1 percent in 2011 and 1.6 percent in 2012 and the economy of the combined euro area will grow 1.1 percent in 2012, while U.S. output will expand 1.5 percent in 2011 and 1.8 percent in 2012, the IMF estimates.

Welfare System
Reinfeldt ended 12 years of unbroken rule by the Social Democrats in 2006 to become prime minister on promises to ease the world’s highest tax burden and protect the country’s cradle- to-grave welfare system. The Social Democrats had built the model while in power during six of the previous seven decades.

The Stockholm native, who’s married with three children, gained a second term last year, becoming the longest serving conservative premier since 1930 after presiding over the fastest economic rebound in the European Union.

Since the financial crisis erupted in 2007, one Swedish bank -- Carnegie Investment Bank -- was wound down after it became clear state support wouldn’t keep it solvent. The government seized Carnegie in November 2008, and resold it three months later for 2.3 billion kronor ($344 million), recouping the value of the original state loan.

Bank Guarantee
Reinfeldt’s guarantee program, which backed as much as 1.5 trillion kronor of bank obligations, will bring in a 5.8 billion-krona profit by 2015 when the loans expire, the nation’s debt office said in its latest report in August.

In the U.K., where the government bailed out Royal Bank of Scotland Group Plc (RBS) and Lloyds Banking Group, the total outstanding support explicitly pledged to Britain’s banks stood at 456.3 billion pounds ($730 billion) at the end of March, or 31 percent of GDP, the National Audit Office said in a July report. The amount was down from a peak of 1.16 trillion pounds.

Three Swedish banks occupy the top four slots of European lenders with the highest price-to-tangible book value, which strips out goodwill and other intangibles. By that measure, Nordea is valued at 1.15 by equity investors and Svenska Handelsbanken AB is at 1.22.

The price-to-tangible book value median for European lenders is 0.79, data compiled by Bloomberg show. London-based Barclays Plc trades at a ratio of 0.52 and Royal Bank of Scotland is at 0.41. Germany’s biggest lender Deutsche Bank AG is valued at 0.68 and Citigroup Inc. trades at 0.61 in New York.

Stricter Standards
Sweden now wants to enforce stricter capital standards than those set by the Basel Committee on Banking Supervision, and plans to introduce the measures ahead of Basel’s 2019 deadline.

Reinfeldt said maintaining income equality through all economic cycles is key to preventing imbalances that disrupt growth. The government also is shelving state assets sales after reaching its target for reducing debt, he said.

Even after four rounds of income-tax cuts, Sweden has the second-highest tax burden as a percentage of GDP after Denmark, and one of the world’s highest levels of income equality, according to the Organization for Economic Cooperation and Development.

“A good society does not have huge differences,” Reinfeldt said. “If you build trust among people, and I think you need that, then they shouldn’t get far apart from each other.”

Monday, November 21, 2011

Culture Strike

Matt Taibbi in Rolling Stone confesses that he has come round to the idea that the Occupiers have a point. I myself got sick of hearing how they were worthless because they didn't have a point. Which was the point I thought, they are true grass roots peaceful protesters. Their detractors have made up crap about people carrying guns etc.. those would be the same people who never said a word about tea Baggers at presidential events carrying weapons. But Taibbi has seen the light in his usual articulate way. At last.

The first few times I went down to Zuccotti Park, I came away with mixed feelings. I loved the energy and was amazed by the obvious organic appeal of the movement, the way it was growing on its own. But my initial impression was that it would not be taken very seriously by the Citibanks and Goldman Sachs of the world. You could put 50,000 angry protesters on Wall Street, 100,000 even, and Lloyd Blankfein is probably not going to break a sweat. He knows he's not going to wake up tomorrow and see Cornel West or Richard Trumka running the Federal Reserve. He knows modern finance is a giant mechanical parasite that only an expert surgeon can remove. Yell and scream all you want, but he and his fellow financial Frankensteins are the only ones who know how to turn the machine off.

That's what I was thinking during the first few weeks of the protests. But I'm beginning to see another angle. Occupy Wall Street was always about something much bigger than a movement against big banks and modern finance. It's about providing a forum for people to show how tired they are not just of Wall Street, but everything. This is a visceral, impassioned, deep-seated rejection of the entire direction of our society, a refusal to take even one more step forward into the shallow commercial abyss of phoniness, short-term calculation, withered idealism and intellectual bankruptcy that American mass society has become. If there is such a thing as going on strike from one's own culture, this is it. And by being so broad in scope and so elemental in its motivation, it's flown over the heads of many on both the right and the left.

The right-wing media wasted no time in cannon-blasting the movement with its usual idiotic clichés, casting Occupy Wall Street as a bunch of dirty hippies who should get a job and stop chewing up Mike Bloomberg's police overtime budget with their urban sleepovers. Just like they did a half-century ago, when the debate over the Vietnam War somehow stopped being about why we were brutally murdering millions of innocent Indochinese civilians and instead became a referendum on bralessness and long hair and flower-child rhetoric, the depraved flacks of the right-wing media have breezily blown off a generation of fraud and corruption and market-perverting bailouts, making the whole debate about the protesters themselves – their hygiene, their "envy" of the rich, their "hypocrisy."

The protesters, chirped Supreme Reichskank Ann Coulter, needed three things: "showers, jobs and a point." Her colleague Charles Krauthammer went so far as to label the protesters hypocrites for having iPhones. OWS, he said, is "Starbucks-sipping, Levi's-clad, iPhone-clutching protesters [denouncing] corporate America even as they weep for Steve Jobs, corporate titan, billionaire eight times over." Apparently, because Goldman and Citibank are corporations, no protester can ever consume a corporate product – not jeans, not cellphones and definitely not coffee – if he also wants to complain about tax money going to pay off some billionaire banker's bets against his own crappy mortgages.

Meanwhile, on the other side of the political spectrum, there were scads of progressive pundits like me who wrung our hands with worry that OWS was playing right into the hands of assholes like Krauthammer. Don't give them any ammunition! we counseled. Stay on message! Be specific! We were all playing the Rorschach-test game with OWS, trying to squint at it and see what we wanted to see in the movement. Viewed through the prism of our desire to make near-term, within-the-system changes, it was hard to see how skirmishing with cops in New York would help foreclosed-upon middle-class families in Jacksonville and San Diego.

What both sides missed is that OWS is tired of all of this. They don't care what we think they're about, or should be about. They just want something different.

We're all born wanting the freedom to imagine a better and more beautiful future. But modern America has become a place so drearily confining and predictable that it chokes the life out of that built-in desire. Everything from our pop culture to our economy to our politics feels oppressive and unresponsive. We see 10 million commercials a day, and every day is the same life-killing chase for money, money and more money; the only thing that changes from minute to minute is that every tick of the clock brings with it another space-age vendor dreaming up some new way to try to sell you something or reach into your pocket. The relentless sameness of the two-party political system is beginning to feel like a Jacob's Ladder nightmare with no end; we're entering another turn on the four-year merry-go-round, and the thought of having to try to get excited about yet another minor quadrennial shift in the direction of one or the other pole of alienating corporate full-of-shitness is enough to make anyone want to smash his own hand flat with a hammer.

If you think of it this way, Occupy Wall Street takes on another meaning. There's no better symbol of the gloom and psychological repression of modern America than the banking system, a huge heartless machine that attaches itself to you at an early age, and from which there is no escape. You fail to receive a few past-due notices about a $19 payment you missed on that TV you bought at Circuit City, and next thing you know a collector has filed a judgment against you for $3,000 in fees and interest. Or maybe you wake up one morning and your car is gone, legally repossessed by Vulture Inc., the debt-buying firm that bought your loan on the Internet from Chase for two cents on the dollar. This is why people hate Wall Street. They hate it because the banks have made life for ordinary people a vicious tightrope act; you slip anywhere along the way, it's 10,000 feet down into a vat of razor blades that you can never climb out of.

That, to me, is what Occupy Wall Street is addressing. People don't know exactly what they want, but as one friend of mine put it, they know one thing: FUCK THIS SHIT! We want something different: a different life, with different values, or at least a chance at different values.

There was a lot of snickering in media circles, even by me, when I heard the protesters talking about how Liberty Square was offering a model for a new society, with free food and health care and so on. Obviously, a bunch of kids taking donations and giving away free food is not a long-term model for a new economic system.

But now, I get it. People want to go someplace for at least five minutes where no one is trying to bleed you or sell you something. It may not be a real model for anything, but it's at least a place where people are free to dream of some other way for human beings to get along, beyond auctioned "democracy," tyrannical commerce and the bottom line.

We're a nation that was built on a thousand different utopian ideas, from the Shakers to the Mormons to New Harmony, Indiana. It was possible, once, for communities to experiment with everything from free love to an end to private property. But nowadays even the palest federalism is swiftly crushed. If your state tries to place tariffs on companies doing business with some notorious human-rights-violator state – like Massachusetts did, when it sought to bar state contracts to firms doing business with Myanmar – the decision will be overturned by some distant global bureaucracy like the WTO. Even if 40 million Californians vote tomorrow to allow themselves to smoke a joint, the federal government will never permit it. And the economy is run almost entirely by an unaccountable oligarchy in Lower Manhattan that absolutely will not sanction any innovations in banking or debt forgiveness or anything else that might lessen its predatory influence.

And here's one more thing I was wrong about: I originally was very uncomfortable with the way the protesters were focusing on the NYPD as symbols of the system. After all, I thought, these are just working-class guys from the Bronx and Staten Island who have never seen the inside of a Wall Street investment firm, much less had anything to do with the corruption of our financial system.

But I was wrong. The police in their own way are symbols of the problem. All over the country, thousands of armed cops have been deployed to stand around and surveil and even assault the polite crowds of Occupy protesters. This deployment of law-enforcement resources already dwarfs the amount of money and manpower that the government "committed" to fighting crime and corruption during the financial crisis. One OWS protester steps in the wrong place, and she immediately has police roping her off like wayward cattle. But in the skyscrapers above the protests, anything goes.

This is a profound statement about who law enforcement works for in this country. What happened on Wall Street over the past decade was an unparalleled crime wave. Yet at most, maybe 1,500 federal agents were policing that beat – and that little group of financial cops barely made any cases at all. Yet when thousands of ordinary people hit the streets with the express purpose of obeying the law and demonstrating their patriotism through peaceful protest, the police response is immediate and massive. There have already been hundreds of arrests, which is hundreds more than we ever saw during the years when Wall Street bankers were stealing billions of dollars from retirees and mutual-fund holders and carpenters unions through the mass sales of fraudulent mortgage-backed securities.

It's not that the cops outside the protests are doing wrong, per se, by patrolling the parks and sidewalks. It's that they should be somewhere else. They should be heading up into those skyscrapers and going through the file cabinets to figure out who stole what, and from whom. They should be helping people get their money back. Instead, they're out on the street, helping the Blankfeins of the world avoid having to answer to the people they ripped off.

People want out of this fiendish system, rigged to inexorably circumvent every hope we have for a more balanced world. They want major changes. I think I understand now that this is what the Occupy movement is all about. It's about dropping out, if only for a moment, and trying something new, the same way that the civil rights movement of the 1960s strived to create a "beloved community" free of racial segregation. Eventually the Occupy movement will need to be specific about how it wants to change the world. But for right now, it just needs to grow. And if it wants to sleep on the streets for a while and not structure itself into a traditional campaign of grassroots organizing, it should. It doesn't need to tell the world what it wants. It is succeeding, for now, just by being something different.

Sunday, November 20, 2011

Occupiers And Occupied

Chris hedges from Truthdig has a habit of getting to the nub of an issue and making what was obscure, plain. His prose is that of the traditional journalist but his ability to make the point clear and obvious is remarkable. That he gets to do it in an era of obfuscation and demands for "parity" in a patently unfair world is even better for those of us who appreciate his panache. His clarification of the role of the Occupiers should be required reading in a world that prefers to deny truth than to dig it up.

Ketchup, a petite 22-year-old from Chicago with wavy red hair and glasses with bright red frames, arrived in Zuccotti Park in New York on Sept. 17. She had a tent, a rolling suitcase, 40 dollars’ worth of food, the graphic version of Howard Zinn’s “A People’s History of the United States” and a sleeping bag. She had no return ticket, no idea what she was undertaking, and no acquaintances among the stragglers who joined her that afternoon to begin the Wall Street occupation. She decided to go to New York after reading the Canadian magazine Adbusters, which called for the occupation, although she noted that when she got to the park Adbusters had no discernable presence.

The lords of finance in the looming towers surrounding the park, who toy with money and lives, who make the political class, the press and the judiciary jump at their demands, who destroy the ecosystem for profit and drain the U.S. Treasury to gamble and speculate, took little notice of Ketchup or any of the other scruffy activists on the street below them. The elites consider everyone outside their sphere marginal or invisible. And what significance could an artist who paid her bills by working as a waitress have for the powerful? What could she and the others in Zuccotti Park do to them? What threat can the weak pose to the strong? Those who worship money believe their buckets of cash, like the $4.6 million JPMorgan Chase gave a few days ago to the New York City Police Foundation, can buy them perpetual power and security. Masters all, kneeling before the idols of the marketplace, blinded by their self-importance, impervious to human suffering, bloated from unchecked greed and privilege, they were about to be taught a lesson in the folly of hubris.

Even now, three weeks later, elites, and their mouthpieces in the press, continue to puzzle over what people like Ketchup want. Where is the list of demands? Why don’t they present us with specific goals? Why can’t they articulate an agenda?

The goal to people like Ketchup is very, very clear. It can be articulated in one word—REBELLION. These protesters have not come to work within the system. They are not pleading with Congress for electoral reform. They know electoral politics is a farce and have found another way to be heard and exercise power. They have no faith, nor should they, in the political system or the two major political parties. They know the press will not amplify their voices, and so they created a press of their own. They know the economy serves the oligarchs, so they formed their own communal system. This movement is an effort to take our country back.

This is a goal the power elite cannot comprehend. They cannot envision a day when they will not be in charge of our lives. The elites believe, and seek to make us believe, that globalization and unfettered capitalism are natural law, some kind of permanent and eternal dynamic that can never be altered. What the elites fail to realize is that rebellion will not stop until the corporate state is extinguished. It will not stop until there is an end to the corporate abuse of the poor, the working class, the elderly, the sick, children, those being slaughtered in our imperial wars and tortured in our black sites. It will not stop until foreclosures and bank repossessions stop. It will not stop until students no longer have to go into debt to be educated, and families no longer have to plunge into bankruptcy to pay medical bills. It will not stop until the corporate destruction of the ecosystem stops, and our relationships with each other and the planet are radically reconfigured. And that is why the elites, and the rotted and degenerate system of corporate power they sustain, are in trouble. That is why they keep asking what the demands are. They don’t understand what is happening. They are deaf, dumb and blind.


“People were worried we were going to get kicked out of the park at 10 p.m. This was a major concern. There were tons of cops. I’ve heard that it’s costing the city a ton of money to have constant surveillance on a bunch of peaceful protesters who aren’t hurting anyone. With the people’s mic, everything we do is completely transparent. We know there are undercover cops in the crowd. I think I was talking to one last night, but it’s like, what are you trying to accomplish? We don’t have any secrets.”

“The undercover cops are the only ones who ask, ‘Who’s the leader?’ ” she said. “Presumably, if they know who our leaders are they can take them out. The fact is we have no leader. There’s no leader, so there’s nothing they can do.

“There was a woman [in the medics unit]. This guy was pretending to be a reporter. The first question he asks is, ‘Who’s the leader?’ She goes, ‘I’m the leader.’ And he says, ‘Oh yeah, what are you in charge of?’ She says, ‘I’m in a charge of everything.’ He says, ‘Oh yeah? What’s your title?’ She says ‘God.’ ”


“People have been yelled out of the park,” she said. “Someone had a sign the other day that said ‘Kill the Jew Bankers.’ They got screamed out of the park. Someone else had a sign with the N-word on it. That person’s sign was ripped up, but that person is apparently still in the park.

“We’re trying to make this a space that everyone can join. This is something the caucuses are trying to really work on. We are having workshops to get people to understand their privilege.”

But perhaps the most important rule adopted by the protesters is nonviolence and nonaggression against the police, no matter how brutal the police become.

“The cops, I think, maced those women in the face and expected the men and women around them to start a riot,” Ketchup said. “They want a riot. They can deal with a riot. They cannot deal with nonviolent protesters with cameras.”

I tell Ketchup I will bring her my winter sleeping bag. It is getting cold. She will need it. I leave her in a light drizzle and walk down Broadway. I pass the barricades, uniformed officers on motorcycles, the rows of paddy wagons and lines of patrol cars that block the streets into the financial district and surround the park. These bankers, I think, have no idea what they are up against.

Libyan Banking

It took me a while to find articles explaining why Libya suddenly became a sworn enemy of the West, and that status suddenly appeared as if from nowhere. We got some hints when the rebels immediately formed a Central Bank, and yet the reason for the sudden attacks on Libya's government never came completely clear. The Lockerbie affair was cleared up, oppressive internal policies had never previously prevented Western governments from dealing with Third World countries. Perhaps Libya's grandiose plans for regional self rule and a free currency were the catalyst. As explained by Alex Newman at the New American website.

It remains unclear exactly why or how the Gadhafi regime went from “a model” and an “important ally” to the next target for regime change in a period of just a few years. But after claims of “genocide” as the justification for NATO intervention were disputed by experts, several other theories have been floated.

Oil, of course, has been mentioned frequently — Libya is Africa‘s largest oil producer. But one possible reason in particular for Gadhafi’s fall from grace has gained significant traction among analysts and segments of the non-Western media: central banking and the global monetary system.

According to more than a few observers, Gadhafi’s plan to quit selling Libyan oil in U.S. dollars — demanding payment instead in gold-backed “dinars” (a single African currency made from gold) — was the real cause. The regime, sitting on massive amounts of gold, estimated at close to 150 tons, was also pushing other African and Middle Eastern governments to follow suit.

And it literally had the potential to bring down the dollar and the world monetary system by extension, according to analysts. French President Nicolas Sarkozy reportedly went so far as to call Libya a “threat” to the financial security of the world. The “Insiders” were apparently panicking over Gadhafi’s plan.

"Any move such as that would certainly not be welcomed by the power elite today, who are responsible for controlling the world's central banks,” noted financial analyst Anthony Wile, editor of the free market-oriented Daily Bell, in an interview with RT. “So yes, that would certainly be something that would cause his immediate dismissal and the need for other reasons to be brought forward [for] removing him from power."

According to Wile, Gadhafi’s plan would have strengthened the whole continent of Africa in the eyes of economists backing sound money — not to mention investors. But it would have been especially devastating for the U.S. economy, the American dollar, and particularly the elite in charge of the system.

“The central banking Ponzi scheme requires an ever-increasing base of demand and the immediate silencing of those who would threaten its existence,” Wile noted in a piece entitled “Gaddafi Planned Gold Dinar, Now Under Attack” earlier this year. “Perhaps that is what the hurry [was] in removing Gaddafi in particular and those who might have been sympathetic to his monetary idea.”

Investor newsletters and commentaries have been buzzing for months with speculation about the link between Gadhafi’s gold dinar and the NATO-backed overthrow of the Libyan regime. Conservative analysts pounced on the potential relationship, too.

“In 2009 — in his capacity as head of the African Union — Libya's Moammar Gadhafi had proposed that the economically crippled continent adopt the ‘Gold Dinar,’” noted Ilana Mercer in an August opinion piece for WorldNetDaily. “I do not know if Col. Gadhafi continued to agitate for ditching the dollar and adopting the Gold Dinar — or if the Agitator from Chicago got wind of Gadhafi's (uncharacteristic) sanity about things monetary.”

But if Arab and African nations had begun adopting a gold-backed currency, it would have had major repercussions for debt-laden Western governments that would be far more significant than the purported “democratic” uprisings sweeping the region this year. And it would have spelled big trouble for the elite who benefit from “freshly counterfeited funny-money,” Mercer pointed out.

“Had Gadhafi sparked a gold-driven monetary revolution, he would have done well for his own people, and for the world at large,” she concluded. “A Gadhafi-driven gold revolution would have, however, imperiled the positions of central bankers and their political and media power-brokers.”

Adding credence to the theory about why Gadhafi had to be overthrown, as The New American reported in March, was the rebels’ odd decision to create a central bank to replace Gadhafi’s state-owned monetary authority. The decision was broadcast to the world in the early weeks of the conflict.

In a statement describing a March 19 meeting, the rebel council announced, among other things, the creation of a new oil company. And more importantly: “Designation of the Central Bank of Benghazi as a monetary authority competent in monetary policies in Libya and appointment of a Governor to the Central Bank of Libya, with a temporary headquarters in Benghazi.”

The creation of a new central bank, even more so than the new national oil regime, left analysts scratching their heads. “I have never before heard of a central bank being created in just a matter of weeks out of a popular uprising,” noted Robert Wenzel in an analysis for the Economic Policy Journal. “This suggests we have a bit more than a rag tag bunch of rebels running around and that there are some pretty sophisticated influences,” he added. Wenzel also noted that the uprising looked like a “major oil and money play, with the true disaffected rebels being used as puppets and cover” while the transfer of control over money and oil supplies takes place.

Other analysts, even in the mainstream press, were equally shocked. “Is this the first time a revolutionary group has created a central bank while it is still in the midst of fighting the entrenched political power?” wondered CNBC senior editor John Carney. “It certainly seems to indicate how extraordinarily powerful central bankers have become in our era.”

Similar scenarios involving the global monetary system — based on the U.S. dollar as a global reserve currency, backed by the fact that oil is traded in American money — have also been associated with other targets of the U.S. government. Some analysts even say a pattern is developing.

Iran, for example, is one of the few nations left in the world with a state-owned central bank. And Iraqi despot Saddam Hussein, once armed by the U.S. government to make war on Iran, was threatening to start selling oil in currencies other than the dollar just prior to the Bush administration’s “regime change” mission.

While most of the establishment press in America has been silent on the issue of Gadhafi’s gold dinar scheme, in Russia, China, and the global alternative media, the theory has exploded in popularity. Whether salvaging central banking and the corrupt global monetary system were truly among the reasons for Gadhafi’s overthrow, however, may never be known for certain — at least not publicly.