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As many writers have documented, the corporate media is usually pro-war. See this.

And so Washington Post hack David Broder’s op-ed arguing that war with Iran will save America’s economy is not all that surprising.

Of course, China and Russia might not sit idly by and let their ally, Iran, be attacked. So there’s the wee complication that bombing Iran could start WWIII.

And, of course, attacking Iran would increase the level of terrorism.

But forget politics and national security.

Broder is also plain wrong on the economics.

In a blog entry entitled “Has David Broder Lost His Mind?,” Foreign Policy managing editor Blake Hounshell writes that Broder’s proposal is “crazy for a number of reasons.”

One is that markets don’t like tensions, and certainly not the kind that jack up oil prices. Second, World War II brought the United States out of the Great Depression because it was a massive economic stimulus program that mobilized entire sectors of society. Today’s American military has all the tools it needs to fight Iran, and there isn’t going to be any sort of buildup. Hasn’t Broder been reading his own newspaper? The Pentagon is looking to find billions in cuts as it confronts the coming world of budget austerity.

And as I have repeatedly pointed out, “military Keynesianism” – that is, launching wars to stimulate the economy, doesn’t work.

For example, as I wrote in August:

Nobel-prize winning economist Joseph Stiglitz has said that war can be very bad for the economy. For example, in 2003, Stiglitz wrote:

War is widely thought to be linked to economic good times. The second world war is often said to have brought the world out of depression, and war has since enhanced its reputation as a spur to economic growth. Some even suggest that capitalism needs wars, that without them, recession would always lurk on the horizon.

Today, we know that this is nonsense. The 1990s boom showed that peace is economically far better than war. The Gulf war of 1991 demonstrated that wars can actually be bad for an economy.

Stiglitz has said that this decade’s Iraq war has been very bad for the economy. See this, this and this.
And as the New Republic noted last year:

Conservative Harvard economist Robert Barro has argued that increased military spending during WWII actually depressed other parts of the economy.

Also from the right, Robert Higgs has done good work showing that military spending wasn’t the primary source of the recovery and that GDP growth during WWII has been “greatly exaggerated.”

And from the left, Larry Summers and Brad Delong argued back in 1988 that “five-sixths of the decline in output relative to the trend that occurred during the Depression had been made up before 1942.”

As I noted in January:

All of the spending on unnecessary wars adds up.

The U.S. is adding trillions to its debt burden to finance its multiple wars in Iraq, Afghanistan, Yemen, etc.

Two top American economists – Carmen Reinhart and Kenneth Rogoff – show that the more indebted a country is, with a government debt/GDP ratio of 0.9, and external debt/GDP of 0.6 being critical thresholds, the more GDP growth drops materially.

Specifically, Reinhart and Rogoff write:

The relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one percent, and average growth falls considerably more. We find that the threshold for public debt is similar in advanced and emerging economies…

Indeed, it should be obvious to anyone who looks at the issue that deficits do matter.

A PhD economist [Michel Chossudovsky] told me:

War always causes recession. Well, if it is a very short war, then it may stimulate the economy in the short-run. But if there is not a quick victory and it drags on, then wars always put the nation waging war into a recession and hurt its economy.

You know about America’s unemployment problem. You may have even heard that the U.S. may very well have suffered a permanent destruction of jobs.

But did you know that the defense employment sector is booming?

As I pointed out in August, public sector spending – and mainly defense spending – has accounted for virtually all of the new job creation in the past 10 years:

The U.S. has largely been financing job creation for ten years. Specifically, as the chief economist for BusinessWeek, Michael Mandel, points out, public spending has accounted for virtually all new job creation in the past 10 years:

Private sector job growth was almost non-existent over the past ten years. Take a look at this horrifying chart:

Between May 1999 and May 2009, employment in the private sector sector only rose by 1.1%, by far the lowest 10-year increase in the post-depression period.

It’s impossible to overstate how bad this is. Basically speaking, the private sector job machine has almost completely stalled over the past ten years. Take a look at this chart:

Over the past 10 years, the private sector has generated roughly 1.1 million additional jobs, or about 100K per year. The public sector created about 2.4 million jobs.

But even that gives the private sector too much credit. Remember that the private sector includes health care, social assistance, and education, all areas which receive a lot of government support.

***

Most of the industries which had positive job growth over the past ten years were in the HealthEdGov sector. In fact, financial job growth was nearly nonexistent once we take out the health insurers.

Let me finish with a final chart.

Without a decade of growing government support from rising health and education spending and soaring budget deficits, the labor market would have been flat on its back.

Indeed, Robert Reich lamented this month:

America’s biggest — and only major — jobs program is the U.S. military.

Back to my January essay:

Raw Story argues that the U.S. is building a largely military economy:

The use of the military-industrial complex as a quick, if dubious, way of jump-starting the economy is nothing new, but what is amazing is the divergence between the military economy and the civilian economy, as shown by this New York Times chart.

In the past nine years, non-industrial production in the US has declined by some 19 percent. It took about four years for manufacturing to return to levels seen before the 2001 recession — and all those gains were wiped out in the current recession.

By contrast, military manufacturing is now 123 percent greater than it was in 2000 — it has more than doubled while the rest of the manufacturing sector has been shrinking…

It’s important to note the trajectory — the military economy is nearly three times as large, proportionally to the rest of the economy, as it was at the beginning of the Bush administration. And it is the only manufacturing sector showing any growth. Extrapolate that trend, and what do you get?

The change in leadership in Washington does not appear to be abating that trend…[121]

So most of the job creation has been by the public sector. But because the job creation has been financed with loans from China and private banks, trillions in unnecessary interest charges have been incurred by the U.S.And this shows military versus non-military durable goods shipments:

[Click here to view full image.]

So we’re running up our debt (which will eventually decrease economic growth), but the only jobs we’re creating are military and other public sector jobs.

PhD economist Dean Baker points out that America’s massive military spending on unnecessary and unpopular wars lowers economic growth and increases unemployment:

Defense spending means that the government is pulling away resources from the uses determined by the market and instead using them to buy weapons and supplies and to pay for soldiers and other military personnel. In standard economic models, defense spending is a direct drain on the economy, reducing efficiency, slowing growth and costing jobs.

A few years ago, the Center for Economic and Policy Research commissioned Global Insight, one of the leading economic modeling firms, to project the impact of a sustained increase in defense spending equal to 1.0 percentage point of GDP. This was roughly equal to the cost of the Iraq War.

Global Insight’s model projected that after 20 years the economy would be about 0.6 percentage points smaller as a result of the additional defense spending. Slower growth would imply a loss of almost 700,000 jobs compared to a situation in which defense spending had not been increased. Construction and manufacturing were especially big job losers in the projections, losing 210,000 and 90,000 jobs, respectively.

The scenario we asked Global Insight [recognized as the most consistently accurate forecasting company in the world] to model turned out to have vastly underestimated the increase in defense spending associated with current policy. In the most recent quarter, defense spending was equal to 5.6 percent of GDP. By comparison, before the September 11th attacks, the Congressional Budget Office projected that defense spending in 2009 would be equal to just 2.4 percent of GDP. Our post-September 11th build-up was equal to 3.2 percentage points of GDP compared to the pre-attack baseline. This means that the Global Insight projections of job loss are far too low…

The projected job loss from this increase in defense spending would be close to 2 million. In other words, the standard economic models that project job loss from efforts to stem global warming also project that the increase in defense spending since 2000 will cost the economy close to 2 million jobs in the long run.

The Political Economy Research Institute at the University of Massachusetts, Amherst has also shown that non-military spending creates more jobs than military spending.

So we’re running up our debt – which will eventually decrease economic growth – and creating many fewer jobs than if we spent the money on non-military purposes.

As I wrote last month:

It is ironic that America’s huge military spending is what made us an empire … but our huge military is what is bankrupting us … thus destroying our status as an empire.

Even Admiral Mullen seems to agree:

The Pentagon needs to cut back on spending.

“We’re going to have to do that if it’s going to survive at all,” Mullen said, “and do it in a way that is predictable.”

Indeed, Mullen said:

For industry and adequate defense funding to survive … the two must work together. Otherwise, he added, “this wave of debt” will carry over from year to year, and eventually, the defense budget will be cut just to facilitate the debt.

Secretary of Defense Robert Gates agrees as well. As David Ignatius wrote in the Washington Post in May:

After a decade of war and financial crisis, America has run up debts that pose a national security problem, not just an economic one.

***

One of the strongest voices arguing for fiscal responsibility as a national security issue has been Defense Secretary Bob Gates. He gave a landmark speech in Kansas on May 8, invoking President Dwight Eisenhower’s warnings about the dangers of an imbalanced military-industrial state.

“Eisenhower was wary of seeing his beloved republic turn into a muscle-bound, garrison state — militarily strong, but economically stagnant and strategically insolvent,” Gates said. He warned that America was in a “parlous fiscal condition” and that the “gusher” of military spending that followed Sept. 11, 2001, must be capped. “We can’t have a strong military if we have a weak economy,” Gates told reporters who covered the Kansas speech.

On Thursday the defense secretary reiterated his pitch that Congress must stop shoveling money at the military, telling Pentagon reporters: “The defense budget process should no longer be characterized by ‘business as usual’ within this building — or outside of it.”

While morons like David Broder might want to start another war, America’s top military leaders and economists say that would be a very bad idea.

Europe targets wasteful gadgets BBC

Can Google call elections? TechBlorge (hat tip reader David C)

‘The middle class has lost track of how poor this country is’ Tehelka Magazine (hat tip reader May S)

Old Foes Square Off Over Issue of Puppies New York Times. I must confess my first cat came from a pet store, which meant it came from a kitten mill (I was not planning to buy a cat, but a friend dragged me into the store when we were out on errands, and one of the kittens knew exactly what he had to do to get out of there). He had a great personality but developed a kidney ailment that was clearly genetic and died when he was three years old, so I am particularly sympathetic to the idea of regulating breeders (and that’s before you get into the quality of life issues for the breeding females).

Jon Stewart’s Rally to Restore Sanity draws marchers from across America Guardian. Yo, are these numbers right? A quarter of a million people? The foreign press is often better at covering events like this, save they usually wind up with estimates of turnout from organizers that are almost always an exaggeration of real turnout. But the WaPo has no estimates of crowd sizv (huh, I recall estimates of the Beck MLK day rally at 90,000, and the photos of the Mall show it to be packed. The NYT similarly has no serious headcount guesstimate either ). I was in Sydney and joined the protest against the Gulf War, and that many turned up, it was a huge event (the subways were absolute sardine cans, they were never remotely that crowded, even at rush hour).

Money Woes Can Be Early Clue to Alzheimer’s New York Times

For-Profit Schools, Tested Again Gretchen Morgenson, New York Times

The Grand Old Plot Against the Tea Party Frank Rich

Marc Faber: Fed’s QE2 Could Trigger Market Correction Seeking Alpha. Funny, Faber was the rage during the crisis, he gets much less coverage now.

The Chamber of Commerce Is the International Cosmopolitan Elite Menzie Chinn. Once you get past his first sentence, this is very useful.

“White House Considering ‘Decoupling’ Top-Tier Tax Cut” Mark Thoma

The GDP Story: Final Demand Grew Just 0.6 Percent Dean Baker

This Is What Accounting Identities Look Like Peter Dorman

Steve Rattner on Sheila Bair Economics of Contempt. Relevant in light of the post below.

FDL Book Salon Welcomes Steven Rattner, Overhaul: An Insider’s Account of the Obama Administration’s Emergency Rescue of the Auto Industry FireDogLake. Today’s must read. FDL readers are a tough crowd!

Antidote du jour:

And for old times’ sake…..

Several regular readers were kind enough to send congratulatory e-mails on our New York Times op-ed, which appears in the Sunday edition. I hope you enjoy it. The text follows:

In Congressional hearings last week, Obama administration officials acknowledged that uncertainty over foreclosures could delay the recovery of the housing market. The implications for the economy are serious. For instance, the International Monetary Fund found that the persistently high unemployment in the United States is largely the result of foreclosures and underwater mortgages, rather than widely cited causes like mismatches between job requirements and worker skills.

This chapter of the financial crisis is a self-inflicted wound. The major banks and their agents have for years taken shortcuts with their mortgage securitization documents — and not due to a momentary lack of attention, but as part of a systematic approach to save money and increase profits. The result can be seen in the stream of reports of colossal foreclosure mistakes: multiple banks foreclosing on the same borrower; banks trying to seize the homes of people who never had a mortgage or who had already entered into a refinancing program.

Banks are claiming that these are just accidents. But suppose that while absent-mindedly paying a bill, you wrote a check from a bank account that you had already closed. No one would have much sympathy with excuses that you were in a hurry and didn’t mean to do it, and it really was just a technicality.

The most visible symptoms of cutting corners have come up in the foreclosure process, but the roots lie much deeper. As has been widely documented in recent weeks, to speed up foreclosures, some banks hired low-level workers, including hair stylists and teenagers, to sign or simply stamp documents like affidavits — a job known as being a “robo-signer.”

Such documents were improper, since the person signing an affidavit is attesting that he has personal knowledge of the matters at issue, which was clearly impossible for people simply stamping hundreds of documents a day. As a result, several major financial firms froze foreclosures in many states, and attorneys general in all 50 states started an investigation.

However, the problems in the mortgage securitization market run much wider and deeper than robo-signing, and started much earlier than the foreclosure process.

When mortgage securitization took off in the 1980s, the contracts to govern these transactions were written carefully to satisfy not just well-settled, state-based real estate law, but other state and federal considerations. These included each state’s Uniform Commercial Code, which governed “secured” transactions that involve property with loans against them, and state trust law, since the packaged loans are put into a trust to protect investors. On the federal side, these deals needed to satisfy securities agencies and the Internal Revenue Service.

This process worked well enough until roughly 2004, when the volume of transactions exploded. Fee-hungry bankers broke the origination end of the machine. One problem is well known: many lenders ceased to be concerned about the quality of the loans they were creating, since if they turned bad, someone else (the investors in the securities) would suffer.

A second, potentially more significant, failure lay in how the rush to speed up the securitization process trampled traditional property rights protections for mortgages.

The procedures stipulated for these securitizations are labor-intensive. Each loan has to be signed over several times, first by the originator, then by typically at least two other parties, before it gets to the trust, “endorsed” the same way you might endorse a check to another party. In general, this process has to be completed within 90 days after a trust is closed.

Evidence is mounting that these requirements were widely ignored. Judges are noticing: more are finding that banks cannot prove that they have the standing to foreclose on the properties that were bundled into securities. If this were a mere procedural problem, the banks could foreclose once they marshaled their evidence. But banks who are challenged in many cases do not resume these foreclosures, indicating that their lapses go well beyond minor paperwork.

Increasingly, homeowners being foreclosed on are correctly demanding that servicers prove that the trust that is trying to foreclose actually has the right to do so. Problems with the mishandling of the loans have been compounded by the Mortgage Electronic Registration System, an electronic lien-registry service that was set up by the banks. While a standardized, centralized database was a good idea in theory, MERS has been widely accused of sloppy practices and is increasingly facing legal challenges.

As a result, investors are becoming concerned that the value of their securities will suffer if it becomes difficult and costly to foreclose; this uncertainty in turn puts a cloud over the value of mortgage-backed securities, which are the biggest asset class in the world.

Other serious abuses are coming to light. Consider a company called Lender Processing Services, which acts as a middleman for mortgage servicers and says it oversees more than half the foreclosures in the United States. To assist foreclosure law firms in its network, a subsidiary of the company offered a menu of services it provided for a fee.

The list showed prices for “creating” — that is, conjuring from thin air — various documents that the trust owning the loan should already have on hand. The firm even offered to create a “collateral file,” which contained all the documents needed to establish ownership of a particular real estate loan. Equipped with a collateral file, you could likely persuade a court that you were entitled to foreclose on a house even if you had never owned the loan.

That there was even a market for such fabricated documents among the law firms involved in foreclosures shows just how hard it is going to be to fix the problems caused by the lapses of the mortgage boom. No one would resort to such dubious behavior if there were an easier remedy.

The banks and other players in the securitization industry now seem to be looking to Congress to snap its fingers to make the whole problem go away, preferably with a law that relieves them of liability for their bad behavior. But any such legislative fiat would bulldoze regions of state laws on real estate and trusts, not to mention the Uniform Commercial Code. A challenge on constitutional grounds would be inevitable.

Asking for Congress’s help would also require the banks to tacitly admit that they routinely broke their own contracts and made misrepresentations to investors in their Securities and Exchange Commission filings. Would Congress dare shield them from well-deserved litigation when the banks themselves use every minor customer deviation from incomprehensible contracts as an excuse to charge a fee?

There are alternatives. One measure that both homeowners and investors in mortgage-backed securities would probably support is a process for major principal modifications for viable borrowers; that is, to forgive a portion of their debt and lower their monthly payments. This could come about through either coordinated state action or a state-federal effort.

The large banks, no doubt, would resist; they would be forced to write down the mortgage exposures they carry on their books, which some banking experts contend would force them back into the Troubled Asset Relief Program. However, allowing significant principal modifications would stem the flood of foreclosures and reduce uncertainty about the housing market and mortgage securities, giving the authorities time to devise approaches to the messy problems of clouded titles and faulty loan conveyance.

The people who so carefully designed the mortgage securitization process unwittingly devised a costly trap for people who ran roughshod over their handiwork. The trap has closed — and unless the mortgage finance industry agrees to a sensible way out of it, the entire economy will be the victim.

It’s astonishing to see how Americans have been conditioned to think that political action and engagement is futile. I’m old enough to have witnessed the reverse, how activism in the 1960s produced significant advances in civil rights blacks and women, and eventually led the US to exit the Vietnam War.

I’m reminded of this sense of despair almost daily in the comments section. Whenever possible action steps come up, virtually without fail, quite a few will argue that there is no point in making an effort, that we as individuals are powerless.

I don’t buy that as a stance, particularly because trained passivity is a great, low cost way to hobble people who have been wronged. I mistakenly relegated an article by Johann Hari in the Independent on this topic to Links, and Richard Kline’s commentary on it made me realize it deserved its own post, so I am remedying that error now.

As Kline observed:

The nut of the matter is this: you lose, you lose, you lose, you lose, they give up. As someone who has protested, and studied the process, it’s plain that one spends most of one’s time begin defeated. That’s painful, humiliating, and intimidating. One can’t expect typically, as in a battle, to get a clean shot at a clear win. What you do with protest is just what Hari discusses, you change the context, and that change moves the goalposts on your opponent, grounds out the current in their machine. The nonviolent resistance in Hungary in the 1860s (yes, that’s in the 19th century) is an excellent example. Communist rule in Russia and its dependencies didn’t fail because protestors ‘won’ but because most simply withdrew their cooperation to the point it suffocated.

Americans have cultural norms that work against trying to move the political/social needle. Class and economic aspirations are one of them; protestors are by definition malcontents, and thus presumed losers. Busy successful people obviously have not reason to waste their time this way, right? Another impediment is the weird American fixation with optimism. Talk candidly about how stuffed up things are, and you can be dismissed as being “negative”. Despite how much it is revered in pop psychology and the “how to succeed in business” literature, optimism is not necessarily a good trait for long, hard fought struggles. Those who anticipate that success will come sooner than it does will find their hopes dashed repeatedly. Some may be resilient enough to themselves up and try again, but that isn’t universal (being pessimistic and tenacious is probably a better stance, but our culture does not breed for that).

From Johann Hari:

There is a ripple of rage spreading across Britain. It is clearer every day that the people of this country have been colossally scammed. The bankers who crashed the economy are richer and fatter than ever, on our cash. The Prime Minister who promised us before the election “we’re not talking about swingeing cuts” just imposed the worst cuts since the 1920s, condemning another million people to the dole queue. Yet the rage is matched by a flailing sense of impotence. We are furious, but we feel there is nothing we can do. There’s a mood that we have been stitched up by forces more powerful and devious than us, and all we can do is sit back and be shafted.

This mood is wrong. It doesn’t have to be this way – if enough of us act to stop it. To explain how, I want to start with a small scandal, a small response – and a big lesson from history.

In my column last week, I mentioned in passing something remarkable and almost unnoticed. For years now, Vodafone has been refusing to pay billions of pounds of taxes to the British people that are outstanding….

Many people emailed me saying they were outraged that while they pay their fair share for running the country, Vodafone doesn’t pay theirs. One of them named Thom Costello decided he wanted to organize a protest, so he appealed on Twitter – and this Wednesday seventy enraged citizens shut down the flagship Vodafone store on Oxford Street in protest. “Vodafone won’t pay as they go,” said one banner. “Make Vodafone pay, not the poor,” said another.

The reaction from members of the public – who were handed leaflets explaining the situation – was startling. Again and again, people said “I’m so glad somebody is doing this” and “there needs to be much more of this.” Lots of them stopped to talk about how frightened they were about the cuts and for their own homes and jobs. The protest became the third most discussed topic in the country on Twitter, meaning millions of people now know about what Vodafone and the government have done.

You might ask – so what? What has been changed? To understand how and why protest like this can work, you need some concrete and proven examples from the past. Let’s start with the most hopeless and wildly idealistic cause – and see how it won. The first ever attempt to hold a Gay Pride rally in Trafalgar Square was in 1965. Two dozen people turned up – and they were mostly beaten by the police and arrested. Gay people were imprisoned for having sex, and even the most compassionate defense of gay people offered in public life was that they should be pitied for being mentally ill.

Imagine if you had stood in Trafalgar Square that day and told those two dozen brave men and women: “Forty-five years from now, they will stop the traffic in Central London for a Gay Pride parade on this very spot, and it will be attended by hundreds of thousands of people. There will be married gay couples, and representatives of every political party, and openly gay soldiers and government ministers and huge numbers of straight supporters – and it will be the homophobes who are regarded as freaks.” It would have seemed like a preposterous statement of science fiction. But it happened. It happened in one lifetime. Why? Not because the people in power spontaneously realized that millennia of persecuting gay people had been wrong, but because determined ordinary citizens banded together and demanded justice.

If that cause can be achieved, through persistent democratic pressure, anything can. But let’s look at a group of protesters who thought they had failed. The protests within the United States against the Vietnam War couldn’t prevent it killing three million Vietnamese and 80,000 Americans. But even in the years it was “failing”, it was achieving more than the protestors could possibly have known. In 1966, the specialists at the Pentagon went to US President Lyndon Johnson – a thug prone to threatening to “crush” entire elected governments – with a plan to end the Vietnam War: nuke the country. They “proved”, using their computer modeling, that a nuclear attack would “save lives.”

It was a plan that might well have appealed to him. But Johnson pointed out the window, towards the hoardes of protesters, and said: “I have one more problem for your computer. Will you feed into it how long it will take 500,000 angry Americans to climb the White House wall out there and lynch their President?” He knew that there would be a cost – in protest and democratic revolt – that made that cruelty too great. In 1970, the same plan was presented to Richard Nixon – and we now know from the declassified documents that the biggest protests ever against the war made him decide he couldn’t do it. Those protesters went home from those protests believing they had failed – but they had succeeded in preventing a nuclear war. They thought they were impotent, just as so many of us do – but they really had power beyond their dreams to stop a nightmare.

Protest raises the political price for governments making bad decisions. It stopped LBJ and Nixon making the most catastrophic decision of all. The same principle can apply to the Conservative desire to kneecap the welfare state while handing out massive baubles to their rich friends. The next time George Osborne has to decide whether to cancel the tax bill of a super-rich corporation and make us all pick up the tab, he will know there is a price. People will find out, and they will be angry. The more protests there are, the higher the price. If enough of us demand it, we can make the rich pay their share for the running of our country, rather than the poor and the middle – to name just one urgent cause that deserves protest.

And protest can have an invisible ripple-effect that lasts for generations. A small group of women from Iowa lost their sons early in the Vietnam war, and they decided to set up an organization of mothers opposing the assault on the country. They called a protest of all mothers of serving soldiers outside the White House – and six turned up in the snow. Even though later in the war they became nationally important voices, they always remembered that protest as an embarrassment and a humiliation.

Until, that is, one day in the 1990s, one of them read the autobiography of Benjamin Spock, the much-loved and trusted celebrity doctor, who was the Oprah of his day. When he came out against the war in 1968, it was a major turning point in American public opinion. And he explained why he did it. One day, he had been called to a meeting at the White House to be told how well the war in Vietnam was going, and he saw six women standing in the snow with placards, alone, chanting. It troubled his conscience and his dreams for years. If these women were brave enough to protest, he asked himself, why aren’t I? It was because of them that he could eventually find the courage to take his stand – and that in turn changed the minds of millions, and ended the war sooner. An event that they thought was a humiliation actually turned the course of history.

You don’t know what the amazing ripple-effect of your protest will be – but wouldn’t Britain be a better place if it replaced the ripple of impotent anger so many of us are feeling? Yes, you can sit back and let yourself be ripped off by the bankers and the corporations and their political lackeys if you want. But it’s an indulgent fiction to believe that is all you can do. You can act in your own self-defence. As Margaret Mead, the great democratic campaigner, said: “Never doubt that a small group of thoughtful people could change the world. Indeed, it’s the only thing that ever has.”

Experts say efforts to beat malaria may backfire BBC

Herding Firesheep in New York City Technology Sufficiently Advanced

Media bodies curb employees’ political activity Financial Times

Astronauts: Asteroid threat calls for teamwork Associated Press (hat tip Dr. Pitchfork)

In Quest for ‘Legal High,’ Chemists Outfox Law Wall Street Journal

U.S. Says Genes Should Not Be Eligible for Patents New York Times

After China’s Rare Earth Embargo, a New Calculus New York Times

Who’s In Charge Here? Not The G20 Simon Johnson

In Search of Ernest Rutherford’s Money Quote Paul Kedrosky (hat tip reader Scott)

Peddling politics in America AlJazeera

BP and Halliburton face bigger claims Financial Times

Mad Dash Into Junk Sets October Record Michael Shedlock

The Big Lie About Social Security Jeff Madrick, The New York Review of Books

Are We All Friedmanites Now? Penn Bullock, Reason Magazine

Antidote du jour:

Joe Nocera has a very hopeful piece at the New York Times on the potential scope and impact of the investigation by all 50 state attorneys general into the robo signing scandal. Nocera stresses that the leader of this effort, Tom Miller of Iowa, and a core group of assistant AGs with long standing working relationships, are using the probe into what banks would have you believe are mere paperwork problems to delve into more serious abuses, with an eye to forcing the servicers to make serious loan modifications:

And best of all, they have a very clear idea of what they are trying to accomplish. They don’t want to merely reform the foreclosure system (though that would be nice, wouldn’t it?). Nor do they particularly want a big financial settlement, which would be meaningless for a giant like Bank of America.

Rather, they hope to use their investigation as a cudgel to force the big banks and servicers to do something they’ve long resisted: institute widespread, systematic loan modifications. “Instead of paying a huge fine,” Mr. Miller posited to me the other day, on his way to an election rally, “maybe have the servicers adequately fund a serious modification process.” Getting the banks and servicers to take loan modification seriously is another in a series of areas where the Obama Treasury Department has failed miserably.

Nocera recounts how some of the AGs were early onto abuses by subprime bank lenders, and mounted successful efforts against First Alliance (in 2002!), Household Financial, and Ameriquest.

But the story also describes how the state prosecutors were blocked from going after bigger banks:

During the bubble, it was the state attorneys general who first saw the problems in subprime lending. But whenever they tried to do something to halt the predatory lending and outright fraud, they were stopped cold by the federal bank regulators, who consistently sided with the banks in court. It is not too much to say that if the states had succeeded, the subprime crisis might never have occurred…..

On the contrary, the O.C.C. and the Office of Thrift Supervision, the two primary federal regulators of the banking industry, viewed their role, incredibly, as protecting banks from consumers rather than the other way around.

They consistently went to court to block efforts by states to put a stop to predatory lending. Their primary weapon was the doctrine of pre-emption, which said, in effect, that because the national banks were governed by federal rules, they were immune from state consumer protection laws. The success of both agencies in asserting pre-emption — which they also used as a marketing tool to make their charters more attractive to potential bank “clients” — actually forced some states to roll back their antipredatory lending laws.

Nocera also believes the passage of Dodd-Frank and the difference in national sentiment mean the AGs will have a clear field in which to operate:

One advantage they have this time is that foreclosure is a state matter, not a federal one. The O.C.C. couldn’t intervene even if it wanted to.

Of course they have another advantage this time around: times have changed. No federal regulator would have the nerve, post-financial crisis, to try to block the states from investigating the mortgage foreclosure scandal.

The law has changed too. As a result of the Dodd-Frank law, it will be much harder for a federal regulator to use pre-emption to shut down a state investigation into a financial institution. Under the new law, states can enforce their own state consumer laws against nationally chartered banks — even when those laws are stronger than any parallel federal law. And state attorneys general have been given the explicit right under the new law to enforce the rules and regulations that will soon emerge from the new Consumer Financial Protection Bureau.

Yves here. As much as I would like to believe this optimistic scenario, do not underestimate the banking industry’s ability to regain the upper hand, and from the public’s perspective, snatch defeat from the jaws of victory. While a bold move by the Ohio attorney general to stymie bank efforts to continue with business as usual in the wake of the robo signing scandal is a good early salvo, this battle has only recently been joined. Because the banks don’t yet appear to realize how much jeopardy they are in, they have not yet geared up for a serious fight.

One factor very much in the AGs favor is the degree of denial operative in the financial services industry and Washington. We’ve (and by this I mean me plus the mortgage and legal experts I confer with) have been gobsmacked by the lame defenses offered by securitization industry professionals, and more important, major law firms. They appear not to understand the nature of their clients’ transgressions; there remarks, when you parse them, amount to “The procedures were proper, what are you folks, idiots?”

But the issue, as we have described in gruesome detail, is the procedures set forth in the securitization documents were not followed, and it appears the lapses were significant and widespread. Now we’ve been told by some experts in close contact with investors that these white shoe law firms are so removed from what is happening in local courts, and have not been consulted by clients who really haven’t turned over the rocks in their own organization, that they are badly behind facts on the ground. While that may be true, there is a more cynical explanation: that investors relied on big firm opinions, which were crafted very narrowly (the form was “if everyone does what they committed to do, everything is swell). These attorneys are bound to come under the spotlight, and their emphasis on the soundness of the procedures, as opposed to what actually took place, is very consistent their likely “see no evil” defense.

The longer that bankers, their lawyers, and their lapdog regulators keep saying “nothing to see here”, the harder it will be for them to reverse gear and demand that Congress or Federal regulators intervene on their behalf. But don’t kid yourself that discussion of that possibility is not underway. I happened to chat with a staffer to a not-terribly-bank-friendly Senator about the foreclosure mess. He matter of factly said he though concerns were overblown (this was about a month ago, before additional shoes had dropped) but then volunteered that if anything serious were amiss, Congress would intercede, relying on pre-emption. Now does Congress have the nerve to trample on state law and run the risk of a Constitutional challenge? I suppose it depends on how high the stakes are perceived to be.

Similarly, we’ve had this worrying trail balloon:

The chairperson of the Federal Deposit Insurance Corporation recently suggested a solution to the on-going mortgage and foreclosures scandal. FDIC Chair Sheila Bair proposed that the banks involved would be granted “legal protection from lawsuits” in exchange for granting struggling homeowners a minimum of 25 percent reduction in monthly mortgage payments.

First, the idea of a broad based exemption from liability is heinous and undermines the operation of a capitalist society. What good are contracts if you can mess up on a grand enough scale so as to receive a Federal waiver? Second, mere payment reductions are inadequate, and serve to protect servicers, whose fees are based on unpaid principal balances. Most investors favor principal mods to viable borrowers because their losses are lower than what they experience through the costs of foreclosure and the process of selling the home (there would need to be disciplined processes for verifying income and putting together household budget information; NACA has a process that could be adapted to this purpose). And remember, many borrowers losing their homes now were not profligate borrowers, but normal credit losses, as in individuals suffering from job losses or cutbacks in hours worked, as well as those on the wrong end of servicing errors.

So I’d be delighted to be wrong and see Nocera’s scenario pan out, but state attorneys general have been hemmed in before. If the foreclosure mess turns out to be as serious as we believe, the banks will push Congress and its friendly regulators hard to call off those nasty state AGs. This saga has a long way to run before anyone can start forecasting outcomes.

I’ve harbored the sneaking suspicion that JP Morgan Chase is the worst behaved of the big US retail banks, based on a couple of experiences with them a bit more than two years ago. Not to bore readers with details, but basically, bank staff lied to me persistently regarding the terms of various products. Of course, the real terms, spelled out in difficult to decipher language in itty bitty print in a very long document, were far more unfavorable to me. It was only a credit card and a supposedly fee free checking account, both of which I promptly closed, so all I suffered was a teeny bit of inconvenience and the annoyance of being had. But if a fairly finance savvy person like me can be fooled by Chase, image the field day it has with normal marks.

Further confirmation of Chase’s duplicity comes via an e-mail from Lisa Epstein, who runs ForeclosureHamlet.org in Florida. If I’ve parsed this document correctly (and lawyers are welcome to opine), it’s a doozy (you can download it from ScribD if you prefer).

JP Morgan Chase Foreclosure Waiver and Release Redacted

The critical bit starts in the third paragraph. There JP Morgan Chase points out that it is becoming more common in Florida for judges to require the bank to take action, meaning file a motion, which then leads to a hearing and and order of cancellation, to stop a foreclosure. It also points out that this is a change. In the past, If the bank merely failed to appear at a judicial sale, most courts would cancel it.

Now here’s the sneaky bit. JP Morgan Chase never bothers to say that it regards filing that motion and going to the trouble of attending a hearing is just too much cost and bother to stop foreclosure action when it has started loan mod negotiations. And to add insult to injury, its sneaky wording makes it sound as if it lacks the power to halt the foreclosure process, as opposed to incur more costs (boldface ours):

Because Chase, as a plaintiff or servicer of your loan, is no longer able to unilaterally cancel a judicial sale in many Courts in the State of Florida….

In other words, JP Morgan Chase offers an irrelevant excuse as a pretext for the borrower to make an astonishing concession:

I/we the undersigned Borrower(s), understand and agree that any and all loss mitigation agreements entered into with Chase……..that requires the cancellation of a judicial sale, shall be made expressly conditional upon the Court rendering a valid and final Order cancelling the judicial sale….any and all loss mitigation agreements shall be deemed null, void, and of no further force and effect…..Chase, as plaintiff or as the servicer of your loan, may proceed with the lawsuit to foreclosure your mortgage, including, without limitation, the upholding of any judicial sale and the issuance of certificate of title, as if no loss mitigation agreement was entered into…

So effectively, what the borrower has agreed to is for JP Morgan Chase to proceed with the foreclosure and to waive all rights to using the existence of a loss mitigation negotiation, or even a signed loss mitigation agreement, as a reason for stopping the foreclosure action. The letter has a faux borrower friendly sixth paragraph, that it “may” attempt to cancel a foreclosure sale, but there is no obligation.

Its true stance is blindingly obvious in the first two paragraphs on the second page. In the first paragraph, it
says that all signed loss mitigation agreements will have a paragraph added that the judicial sale has to be canceled for the loss mitigation agreement to be valid, and in the off chance all this isn’t clear, this little two page letter, which gets JP Morgan Chase off the hook as far as doing anything to stop the foreclosure sale, and further asking the chump borrower to waive any rights he might have to protest, controls.

To put it even more bluntly, this has all the appearances that Chase wants to foreclose, and is pressing borrowers to agree to terms that guarantee that loss mitigation negotiations have no force if a foreclosure action is underway.

This document is consistent with complaints we reported on earlier from Florida’s rocket docket, that foreclosures were finalized even when borrowers protested to the court that they were in loan modification programs. This is yet another example of how the banks are gaming the latest loan modification program, HAMP. Servicers collect fees for foreclosures and have the opportunity to apply the proceeds to the principal and interest advances they have made to investors. Those incentive far outweigh the puny fees the Treasury pays them to mod, but hey, if they can have both and placate Treasury by going through the motions of doing loan mods, why not?

Now some readers may argue that this is a cover your ass letter, but I don’t buy that. The language is sweeping and absolute. One rule in negotiations is never make a free concession (as in give something up without getting something back) and the concession that Chase demands is huge. A more reasonable document would have concessions to the borrower, like a requirement that Chase would make good faith efforts to halt any foreclosure, with a caveat that it could not guarantee outcomes. A carve out that Chase demonstrate, if pressed, that it had taken reasonable steps consistent with following through with the loan modification effort would make this a relatively fair agreement. But JP Morgan Chase is clearly not in the business of being fair.

Reader James S. highlighted a useful article at the MIT Technology Review, “Can the U.S. Rare-Earth Industry Rebound?” Our only quibble to this solid piece is its summary, which underplays some critical aspects of the article:

The U.S. has plenty of the metals that are critical to many green-energy technologies, but engineering and R&D expertise have moved overseas.

In fact, the while the article does discuss US versus foreign engineering expertise in rare earths mining, it describes in some detail how difficult rare earths mining is in general (more accurately, not the finding the materials part, but separating them out) and the considerable additional hurdles posed by doing it in a non-environmentally destructive manner. Thus the rub is not simply acquiring certain bits of technological know-how, but also breaking further ground in reducing environmental costs.

And this issue has frequently been mentioned in passing in accounts of why rare earth production moved to China in the first place. It’s nasty, and advanced economies weren’t keen to do the job. China was willing to take the environmental damage. For instance, the New York Times points out:

China feels entitled to call the shots because of a brutally simple environmental reckoning: It currently controls most of the globe’s rare earths supply not just because of geologic good fortune, although there is some of that, but because the country has been willing to do dirty, toxic and often radioactive work that the rest of the world has long shunned.

From the MIT Technology Review:

Getting from rocks to the pure metals and alloys required for manufacturing requires several steps that U.S. companies no longer have the infrastructure or the intellectual property to perform….

In the 1970s and 1980s, the Mountain Pass mine in California produced over 70 percent of the world’s supply. Yet in 2009, none were produced in the United States, and it will be difficult, costly, and time-consuming to ramp up again…

The two mines that will be stepping up production soonest are Mountain Pass, being developed by Molycorp, and the Mount Weld mine, which is being developed by Lynas, outside Perth, Australia. Mountain Pass has the edge of already having been established. But the company cannot use the processes used in the mine’s heyday: they’re both economically and environmentally unsustainable.

Several factors make purification of rare earths complicated. First, the 17 elements all tend to occur together in the same mineral deposits, and because they have similar properties, it’s difficult to separate them from one another. They also tend to occur in deposits with radioactive elements, particularly thorium and uranium. Those elements can become a threat if the “tailings,” the slushy waste product of the first step in separating rare earths from the rocks they’re found in, are not dealt with properly…

Mountain Pass went into decline in the 1990s when Chinese producers began to undercut the mine on price at the same time as it had safety issues with tailings. When the Mountain Pass mine was operating at full capacity, it produced 850 gallons of waste saltwater containing these radioactive elements every hour, every day of the year. The tailings were transported down an eleven-mile pipeline to evaporation ponds. In 1998, Mountain Pass, which was then owned by a subsidiary of oil company Unocal, had a problem with tailing leaks when the pipeline burst; four years later, the company’s permit for storing the tailings lapsed.

Meanwhile, throughout the 1990s, Chinese mines exploited their foothold in the rare-earth market. The Chinese began unearthing the elements as a byproduct of an iron-ore mine called Bayan Obo in the northern part of the country; getting both products from the same site helped keep prices low initially. And the country invested in R&D around rare-earth element processing, eventually opening several smaller mines, and then encouraging manufacturers that use these metals to set up facilities in the country.

Yves here. I’d be curious for input on this point from any informed readers. China has allegedly made R&D advances, but are these processes aimed at increased efficiency? If so, they’d give China a cost advantage, but not contend with environmental issues; indeed, it’s conceivable that the toll with these new processes is even worse. Back to the article:

By 2012, Molycorp expects to produce 20,000 tons a year, and under its current mining permits could double capacity to 40,000 tons. Sims also says the company will produce rare-earth products at half the cost of the Chinese in 2012. According to the company, these savings will be made possible by several changes, such as eliminating the production of waste saltwater. Molycorp will use a closed-loop system, converting the waste back into the acids and bases required for separation and eliminating the need to buy such chemicals. The company will also install a natural-gas power cogeneration facility onsite to cut energy costs.

But Ames Lab’s Geschneidner notes that one major source of cost in the separation process can’t be eliminated–the fact that it simply takes a long time. Milled rock is shaken again and again in a mixture of solvents to separate the elements by weight; depending on the ultimate purity that’s required, this must be done 10,000 to 100,000 times. The result is then sold as a concentrate or treated to produce rare-earth metal oxides.

Even if Molycorp does succeed in reducing the costs of separation by half, the next step in production may cause a hiccup. Rare-earth oxides and concentrates do have a market, for example as catalysts for the petroleum industry, but they can’t be made into magnets. To make magnets, rare-earth oxides must first be converted into pure metals, a process that produces caustic byproducts, and is done solely in China today. Sims says that Molycorp is investigating pathways that are environmentally friendly and aren’t covered under intellectual property owned by foreign companies. These metals must next be made into alloys suitable for the magnets, another capability that’s concentrated overseas, mostly in Japan and Germany.

The story is not quite as dire as one might conclude from this article, which focuses strictly on the US mining question. The US is not the only country looking to gear up its rare earth production. Rare earths can be extracted from used products, particularly cars. And some products can be designed to eliminate the use of rare earths, although the tradeoff is typically more bulk and weight. Nevertheless, it is clear that advanced economies will need to make a lot of adjustments, including more investments in R&D and product design, to contend with the challenge of rising demand versus constrained supplies of rare earths.

We have pointed out several times that banks were being awfully optimistic in assuming that they could simply replace improper “robo signed” affidavits with ones that were done correctly. The submission of a phony affidavit is a fraud on the court. The lawyers involved are subject to sanctions and judges could reject the filing, forcing banks to restart foreclosures from scratch.

The Ohio attorney general is using the leverage this situation presents to turn the table on banks. From the Wall Street Journal:

In two letters released Friday, Attorney General Richard Cordray criticized a number of banks and loan-servicing companies, including Wells Fargo & Co.; Ally Financial Inc.’s GMAC Mortgage; Bank of America Corp.; and J.P. Morgan Chase & Co. Mr. Cordray said the banks are trying to paper over fraud committed in foreclosures with temporary fixes that don’t address underlying problems in the banks’ practices.

“It is not acceptable for a party who believes they submitted false court documents to merely replace those documents. Wells Fargo and any other banks are not simply allowed a ‘do-over,’” he wrote in the letter to Wells. The other letter was sent to Ohio judges, who were asked to notify Mr. Cordray when banks file substitute affidavits….

“The banks are committing fraud on the court, essentially perjury, and then saying ‘Whoops! You caught me! Here’s some different evidence and use that instead,’ ” Mr. Cordray said in an interview Friday. “I know a lot of judges are not going to take kindly to that.”

Amusingly, Wells Fargo, the most self-righteous of the big banks (it went from claiming its practices were fine and falsely claiming it had no robo signers to suddenly deciding it had to resubmit 55,000 affidavits), does not get it:

A Wells Fargo spokeswoman said Friday the company intends to cooperate with Mr. Cordray’s inquiries and doesn’t “believe that any of these instances led to foreclosures which should not have otherwise occurred.” She added that Wells Fargo has “chosen to submit supplemental affidavits out of an abundance of caution.”

It’s going to be even more fun if more state AGs decide to put banks through the unfamiliar process of respecting the law.

Flamingos use ‘make-up’ Telegraph

Bat disease threatens ecological catastrophe Independent (hat tip reader May S)

The psychopathic parrot who’s ruining my life (and it’s all my feather-brained children’s fault) Daily Mail (hat tip reader May S). This story is so peculiar it’s probably true.

Verizon Wireless pays FCC $25M for years of false data charges Washington Post

Johann Hari: Protest works. Just look at the proof Independent (hat tip reader May S)

Say No or Surrender: Progressives Seek to Close “Enthusiasm Gap” for Evil Chris Floyd

David Brooks Tells Us the Unemployed Are Really Concerned About Values Dean Baker

The Post Election GOP War on Financial Reform Mike Konczal

Still plenty to play for on the Dodd-Frank bill Gillian Tett

Morgan Stanley: Shorting The Dollar Is A Crowded Trade Just Asking To Be Squeezed Cluserstock

Banks ‘Want to Sit Down’ With States to Discuss Foreclosures Bloomberg

Credit Markets: Ballot measures put muni bond holders on edge MarketWatch

Antidote du jour:

Here’s the update, per the New York Times:

The Chinese government on Thursday abruptly ended its unannounced export embargo on crucial rare earth minerals to the United States, Europe and Japan, four industry officials said.

The embargo, which has raised trade tensions, ended as it had begun — with no official acknowledgment from Beijing, or any explanation from customs agents at China’s ports.

Rare earths are increasingly in demand for their use in a broad range of sophisticated electronics, from smartphones to smart bombs.

Having blocked shipments of raw rare earth minerals to Japan since mid-September, and to the United States and Europe since early last week, Chinese customs agents on Thursday morning allowed shipments to resume to all three destinations, the industry officials said.

Note that while the ban has been reversed, the supply interruption has led to a price spike, and that may persist if China keeps supplies tight. From the Times:

Even with containers of rare earths once again leaving China’s docks, foreign buyers still face potential shortages. As China’s own industrial needs for rare earths have grown, Beijing has repeatedly reduced its export quotas for the minerals over the last five years. So even when China is shipping its full quotas, the outbound supply is now well below world demand.

Moreover, the tight export quotas have caused world prices to soar, even while holding steady in China.

There are two different ways to read this little contretemps, and readers can no doubt come up with other interpretations:

1. This was a successful shot across the bow of the US (the initial Japan freeze was in many ways directed as the US as welll because the US consumes far more of Chinese rare earths via Japanese intermediate and end products than via direct purchases from China, even if the immediate impact on Japan was more pronounced). The Treasury has backed off its pressure on China to have the renminbi appreciate more quickllyand is now supporting the idea of China coming up with longer term goals to rein in its trade surplus

2. This was a shot across the bow that failed. China only banned raw materials exports; it wanted to force encourage its trade partners to buy products manufactured in China with rare earths content. But instead, Japan immediately started to focus on recycling rare earths and redesigning products to use less of them; the Eurozone similarly started to consider accelerated development of alternative sources, rather than buying higher value added goods from China. This seems consistent with the fact that Secretary Clinton was make remarks about the ban; it was dropped literally hours before her speech, but the State Department has not gotten confirmatoin.

There are more news sightings that point to heightened worry about Eurozone sovereign debt/bank woes. A spate from Bloomberg this AM. Normally, when I can come close to doing one-stop shopping on relevant topics on Bloomberg, it’s a sign of anxiety.

The first is “EU Bows to German Call for Permanent Debt Mechanism.” This piece describes how the Germans are successfully pressing for a program to make the Euro-rescue program, which was scheduled to expier in 2013, permanent. This might normally sound like prudent planning, but it comex in the context of widening bond spreads on the countries perceived to be at risk. But some elements that were leaked about the German plan sound less than enticing to bond investors:

Germany’s demands come as bond yields in deficit-strapped Ireland and Portugal inch higher, threatening to reignite concerns about government finances that brought the 16-nation euro to the brink of breaking up six months ago.

EU President Herman Van Rompuy said there was no discussion of a debt-rescheduling facility, leaving the European Commission to propose a structure for the crisis mechanism by December….

“The absence of a crisis mechanism almost brought down the euro,” Van Rompuy said. With the currency up 16 percent against the dollar from June’s four-year low, he said “we won the immediate battle of the euro, but the problems are not completely over yet.” The European currency bought $1.3872 at 9:12 a.m. Brussels time, down 0.4 percent on the day.

Irish bonds declined this week, pushing the extra yield that investors demand to hold the nation’s 10-year debt instead of benchmark German bunds to within two basis points of a euro- era record yesterday. The so-called spread widened 20 basis points in the week to 425 basis points. The Portuguese 10-year spread over bunds widened to as much as 355 basis points yesterday from 339 basis points at the end of last week…

Merkel’s crisis-resolution plan foresees an extension of debt maturities, suspension of interest payments and a waiver on creditors’ claims, Handelsblatt newspaper reported yesterday, citing an unidentified government official.

Next is “Irish, Spanish Banks Failing to Kick ECB Habit: Euro Credit“:

Greek, Irish and Spanish banks are falling behind their counterparts across Europe in reducing their dependence on emergency central bank funding because they can’t find investors willing to buy their bonds.

Lenders from those three nations took 61 percent of the loans supplied by the European Central Bank at the end of September, up from 51 percent the previous month, data from their respective central banks show. Overall, the region’s banks cut their funding to 514.1 billion euros ($716 billion), the least since Lehman Brothers Holdings Inc.’s collapse in September 2008, according to ECB figures.

Deutsche Bank AG, HSBC Holdings Plc and Societe Generale SA have sold new debt since regulators stress-tested 91 of the region’s lenders in a bid to rebuild confidence in their creditworthiness. By contrast, bonds of all lenders in Portugal, Ireland and Greece are trading as though junk rated, as are a third of banks in Spain, according to data compiled by Bank of America Corp. Their struggle to sell debt will make it harder for the ECB to curb loans to banks on Europe’s periphery.

So much for the clean bills of health issued in the recent stress tests.

The next headline is a bit of a headfake: “Greek-German Bond Yield Spread Rises to Highest Since Oct. 1 ” Highest this month? So? But the increase since October 22 has been sharp: from 622 basis points to just over 800.

Now the counter indicator is that the Financial Times, which European readers like to grumble jumps a bit too enthusiastically on the eurozone worrywart bandwagon, has been pretty quiet on this topic. But it has also been devoting a lot of effort to covering the UK budget and the US elections. So its commentators may be a tad distracted. And Ambrose Evans-Pritchard, who is also accused of being unduly alarmist, seems to regard QE2 as the biggest danger on the horizon.

By Joe Costello, communications director for Jerry Brown’s 1992 presidential campaign and was a senior adviser for Howard Dean’s effort in 2004 who writes at Archein and New Deal 2.0

Without meaningful reforms, our economy — and our politics — will continue to suffer.

New York, New York big city of dreams
And everything in New York ain’t always what it seems
You might be fooled if you come from out of town
But I’m down by law, I know my way around
Too much, too many people, too much
- Grandmaster Flash and the Furious Five

David Leonhardt has a piece in the New York Times on how the economy is hurting Obama and the Dems. It’s one of those articles that illustrates that when you’re reading the NYTimes, sometimes you need to check to see if you accidentally clicked over to The Onion. Two punchlines:

On the evening of Dec. 3 last year, the Bureau of Labor Statistics sent an advance copy of the next morning’s jobs report to the White House… It showed that job losses had all but stopped in November, after nearly two years of big declines. White House aides exulted. Christina Romer, a top economist, brought a copy of the numbers to the Oval Office, and President Obama embraced her. A photograph of the moment, with a Christmas tree off to the side, was hung in the office of the Council of Economic Advisers. The good news — and the optimism — would continue for the next few months.

and:

“The health care bill alone is the most significant and far-reaching piece of domestic social policy in my lifetime,” says Neera Tanden, the 40-year-old chief operating officer of the liberal Center for American Progress, who worked in the Clinton and Obama administrations and was a top official in Hillary Clinton’s campaign. In all, Ms. Tanden added, “It is hard to see a more productive session of Congress in decades.”

The Dems are finding out that “productive” is in the eye of the beholder. Meanwhile, Ms. Tanden didn’t seem to get the memo the Dems aren’t running on their “most significant and far-reaching piece of domestic social policy.”

And the complete capitulation concerning any real financial reform, where the Dems proved themselves for all who honestly care to look only loyal to Wall Street and the big banks, continues to be a drag on any sort of economic revival. The WSJ has an excellent piece on how the banks all posted profits this quarter by raiding their reserves shored up against bad loans. Because of course the housing market is getting better, right? The piece states:

The biggest U.S. banks virtually doubled their collective earnings in the third quarter just by injecting $8.1 billion into net income from funds they had set aside to cover loan losses.

There are 18 commercial banks in the U.S. with at least $50 billion in assets, and together they earned an adjusted $16.8 billion in the third quarter. Of those profits, nearly half, or 48%, were from drawing down what bankers call loan-loss reserves, according to an analysis by Dow Jones Newswires. A year ago, the same 18 banks earned $6.2 billion in quarterly profits; at that time, they added more than $7.8 billion to the same reserves, a move that reduced their profits. The analysis omits a $10.4 billion noncash charge to earnings that Bank of America Corp. disclosed during the third quarter.

Finally, Chris Whalen has a must-read piece on how, until we restructure and reform the financial sector, we will have no economic vitality. Whalen writes:

Because President Barack Obama and the leaders of both political parties are unwilling to address the housing crisis and the wasting effects on the largest banks, there will be no growth and no net job creation in the U.S. for the next several years. And because the Obama White House is content to ignore the crisis facing millions of American homeowners, who are deep underwater and will eventually default on their loans, the efforts by the Fed to reflate the U.S. economy and particularly consumer spending will be futile. As Alan Meltzer noted to Tom Keene on Bloomberg Radio earlier this year: “This is not a monetary problem.”

Forget Treasury Secretary Tim Geithner lying about the relatively small losses at American International Group (AIG), the fraud and obfuscation now underway in Washington to protect the TBTF banks and GSEs totals into the trillions of dollars and rises to the level of treason. And the sad part is that all of the temporizing and excuses by the Fed and the White House will be for naught. The zombie banks and GSEs alike will muddle along until the operational cost of servicing bad loans engulfs them. Then they will be bailed out — again — or restructured.

Make no mistake folks, there’s a criminal element atop our financial industry, who operate with both the complicity and culpability of much of our political class. Until we reform our politics and the financial industry, we will not have economic vitality. And we will not have reform, until it is demanded and undertaken by the American people. That is where we are.

Your humble blogger is quoted at some length in this Playboy article (yes, article, remember the classic male wink and nod about buying Playboy for its articles) along with Bill Black. This piece was heralded in the New York Times. An excerpt:

On the night of March 10, 2010 an other­wise anonymous American financial writer working under the name of Eddie “Edmundo” Braverman sat at his computer and took a sip of rum. He was about to take the biggest risk of his life.

On his screen was an article he had written for WallStreetOasis.com, an investment­-banking website. This article set forth a plan for how consumers could destroy one of America’s four largest banks. Customers would deliver a series of escalating threats against Wells Fargo, Bank of America, JPMorgan Chase and Citibank, demanding policy changes. The threats would culminate in a series of flash-mob bank runs that targeted one of the banks.

Eddie was hardly alone in believing today’s finance industry rested on accounting fraud and government complacency. While perhaps naive in its assumptions and overreaching in its goals, Eddie’s plan held promise: ordinary people taking control of an industry that was out of control. If Eddie’s plan was followed and his identity revealed, he could be held legally accountable for unleashing the destructive power of the mob. He took another sip and reviewed his plan one more time.

Here’s how Eddie would destroy your bank. And how you can help him do it.

The article continues here.

Reader query: what do you make of the Braverman plan? Do you think it would succeed in a narrow sense, as in could he get the needed following and support? And if it did, what impact do you think it would have?

From an alert reader:

The United States of America in one short scene, from Politico:

MILITARY OFFICERS TOUR JPMORGAN — JPMorgan Chase yesterday hosted about 30 active duty military officers (across all branches and agencies) from the Marine Corps War College in Quantico, Va. The officers met with senior executives, toured the trading floor and participated in a trading simulation. They discussed recruitment, operations management, strategic communications and the economy. Aside from employees thanking them for their service as they passed by, they also received a standing ovation on the trading floor. Said one officer after a senior JPM exec thanked him for his service: “We promise to keep you safe if you keep this country strong.“

Now I know this was just a casual snippet, but these offhand remarks often speak volumes.