naked capitalism

It should come as no surprise that those at the top of the food chain get preferential treatment on all levels. But this still stinks to high heaven. Employees of the Goldman, the Fed, Citigroup, and other banks are getting H1N1 vaccine allotments out of proportion to what can be justified from a public health standpoint. In particular, Goldman has gotten more than Lenox HIll hospital, which needs it not just for the sick but more important, for workers (not only does the public need to keep front-line health care workers in as good shape as possible, but if they get the infection, they become disease vectors fast, given the number of people they see).

Then again, banks have become parasitic, so why should we expect anything different? And although Business Week broke the story, it did it press release style:

To the list of hundreds of schools, hospitals, and community health centers that have received limited allocations of the H1N1 swine flu vaccine, you can now add some of New York’s largest employers. In the past week or so 13 companies, including Citigroup (C) and Goldman Sachs (GS), have begun receiving small quantities of the vaccine, according to city health authorities.

Citigroup has been supplied with 1,200 units and Goldman with 200, says Jessica Scaperotti, press secretary for the Department of Health & Mental Hygiene. The agency has so far approved orders by 29 employers—including 16 that have yet to receive any vaccine—after they were cleared by the U.S. Centers for Disease Control & Prevention (CDC). Big employers that have received or are scheduled to receive vaccine so far include Time Warner (TWX), JPMorgan Chase (JPM), Memorial Sloan-Kettering, New York Presbyterian Healthcare System, and New York University.

Health-care workers at those employers are bound by the CDC to distribute the vaccine only to populations deemed to be at high risk of developing serious complications from swine flu: pregnant women, children and young people aged 6 months to 24 years, people who live with or provide care for infants under 6 months (who cannot be vaccinated), people aged 24 to 64 with medical conditions that put them at higher risk for flu-related complications, and health-care workers and emergency medical personnel.

Yves here. Welcome to the class system in action. If you don’t work for a big, influential company, go to the back of the queue. Why should companies be the nexus of distribution for vaccines? I guarantee no Goldman MD gets much of his routine medical treatment from the GS health workers on staff (emergencies or a fast diagnostic like a strep test are different). But if you work for a less privileged employer or are self-employed or between jobs, tough luck, go to the back of the queue, you have to try to get yours (assuming you can) from vaccination centers in New York City. How easy do you think that will be? The difficulty and queuing are certain to be much worse than for any of the big financial players.

And please, it strains credulity to think that someone on the payroll at these companies won’t bend to pressure to make allotments at the margin according to who is most powerful. Do you think if Lloyd Blankfein or another member of the management committee was in a risk category that he would be denied it, assuming the firm did not have enough to go around? (and that is likely). Now given the brouhaha, Goldman may bend over backwards not to abuse this overmuch now that there is media pushback. But this serves to illustrate how the system has been suborned on just about every front. To wit, Goldman is getting 200 doses of the vaccine, the same number as Lenox Hill Hospital.

The efforts to try to burnish the image of bankers have gone from being unconvincing to ridiculous. I am certain we will see Jon Stewart comment on the latest twist, of trying to claim that God wants banks (and therefore bankers) to make a lot of money.

Since Calvinism is the de facto religion of America, equating wealth with virtue would normally make perfect sense. But one of my colleagues, who is thinking about writing a book on Christianity and capitalism, points out that God as depicted in the Bible is not a very good steward of the planet. He regularly uses brimstone, floods, earthquakes, plagues, and whatnot. And there aren’t offsetting scenes of acts of nature conservancy. So if man was created in God’s image, and God seems to have a bit of an appetite for destruction, perhaps the God-invokers are barking up the wrong tree. They might instead consider passing themselves off as mere vessels of Divine will in helping make bad things happen, that the people are who are suffering, in good Calvinist logic, clearly must be sinners somehow, even if it is not obvious what they did wrong.

But the defenses we get instead are more than a bit twisted, at least as reported in Bloomberg:

Barclays Plc Chief Executive Officer John Varley stood at the wooden lectern in St. Martin-in-the- Fields on London’s Trafalgar Square last night and told the packed pews of the church that “profit is not satanic.”

The 53-year-old head of Britain’s second-biggest bank said banks are the “backbone” of the economy. Rewarding high- performing bankers with more pay doesn’t conflict with Christian values, he said. Varley was paid 1.08 million pounds ($1.77 million) and no bonus in 2008….

“Is Christianity and banking compatible? Yes,” he said in an interview after the speech in the 283-year-old church. “And is Christianity and fair reward compatible? Yes.”

Yves here. Whoa! I will agree that banking is probably not Satanic, but not being on a first name basis with him, I could be wrong here. “Satanic” leads to images of ritual sacrifice of babies, and I don’t think the banking industry is into that,. However, many readers were put off by the idea of securitizing life settlements. That occurs when the holder of a life insurance policy is bought out by a third party who continues paying the premiums, speculating that they will die on some sort of actuarially-determined timetable. Of course, if the investor is proven wrong, and the people whose lives he is now insuring live longer than expected, he makes less money and has reason to want them to die, and could resort to trying to speed up the inevitable.

And regardless of your views of Satanic practice, saying something is “not Satanic” is far from saying it is not sinful, or simply morally dubious. I thought that the Seven Deadly Sins were part of the Catholic canon. Seems to me modern bankers practice every one except for sloth.

As I dimly recall (I must confess I received no religious instruction growing up, but you can’t avoid picking up snippets here and there), Jesus did say, “It is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God.” Bankers don’t have to become rich, that it not inherent to banking, but it does seem to be the point of the exercise and is occurring much more frequently than it used to. However, I have also been told that the Eye of the Needle was the smallest gate into Jerusalem, and a camel could go through it, but only if it crawled on its knees, which is difficult for them. Either way, this argument about “compatibility” is awfully strained.

Saying that banks are the “backbone” of the economy is also not persuasive. Banks should be a support function; the backbone metaphor, even if true, says the structure of the economy is not sound. And the statement implies that God wants a strong economy. My impression is that the Bible is pretty silent on that topic.

Of course, you could also turn this argument on its head. If God really did want banks to make money, they have been really really bad at it! How many years of earnings were torched in the crisis? Certainly everything since 2003. And then the banks should properly be charged for all the losses their messes created in the real economy. So the people who ran those banks should not expect to be well treated on Judgement Day, no matter how you look at their divine mission.

Then we have this doozy:

“The injunction of Jesus to love others as ourselves is an endorsement of self-interest,” Goldman’s [Brian] Griffiths said Oct. 20, his voice echoing around the gold-mosaic walls of St. Paul’s Cathedral, whose 365-feet-high dome towers over the City, London’s financial district. “We have to tolerate the inequality as a way to achieving greater prosperity and opportunity for all.”

Yves again. This is the most brazen example of Newspeak I have ever seen. The remark Griffith cited is against self-interest, it’s a clear and well known instruction to put other people’s interest on the same footing as your own, to be at least fair, if not to go out of your way to be fair. But all Griffiths pays attention to is the self love part, ignores the rest, and acts as if he can brazen his way into getting others to buy his obviously warped reading.

I think they must put something in the water at Goldman these days. The firm seems to be incapable of reasoning any more, and instead reverts increasingly to patent examples of self-serving, intelligence-insulting palaver, which to anyone with an operating brain cell looks narcissistic. Not only is the only thing that matters is what is good for Goldman, but the people at the firm are so deeply inculcated that they assume that the rest of the world recognizes their superiority and privileged claim on everything, so they no longer even bother indulging the idea that other people might have rights too.

Although JP Morgan (so far) has not invoked God to defend its conduct, by any standards it is pretty dubious. It was still trying to extract blood from a turnip in Jefferson County, Alabama, by trying to extract $647 million in termination fees on interest rate swaps. Those swaps were subordinate to $3.2 billion in bonds that the county clearly cannot pay. But did JP Morgan fold up its tent and go home? No, it had been litigating, and it was only an SEC suit that led the bank to relent, and not only drop its claims but pay a total of $75 million in penalities to local government entities. That is cold comfort for Jefferson County, since it is still on the hook for the bonds that were part of the deal that JP Morgan helped structure.

But as reader Marshall Auerback reminds us, Shakespeare was onto the bankers long ago. From the Merchant of Venice:

Mark you this, Bassanio,
The devil can cite Scripture for his purpose.
An evil soul producing holy witness
Is like a villain with a smiling cheek,
A goodly apple rotten at the heart:
O, what a goodly outside falsehood hath!

It was curious to see the immediate complacent stock market reaction to the FOMC remarks that the Fed is going to keep rates low for an extended period (although it did crumble right before the close of trading). Yes, the central bank will have a tricky balancing act when it has to mop up liquidity, so there is a lot of hand-wringing about inflation down the road. But the subtext is that the big risk is deflation. And Japan has never had to worry about mopping up liquidity, it had and still has to worry about creating demand.

Some new sightings on the “where have all the consumers gone” front. The Financial Times reports that Americans are cutting back at the grocery store, even on pet food. That tells me that despite the effect of cash for clunkers and a pick-up in luxury spending, the average consumer is belt-tightening, literally and figuratively:

Tights, sunglasses and boneless chickens have joined the list of casualties of America’s economic crisis, as the era of impulse shopping gives way to more wary behaviour in the nation’s grocery aisles.

Americans unwilling to pay extra for their food to be prepared bought $65m more whole frozen chickens in the third quarter than a year earlier, and $50m fewer boneless birds…

“Instant gratification” categories such as sunglasses and tights registered some of the steepest declines…

Men, keen to look sharp in the office as the country faces its highest unemployment rates for a generation but unwilling to spend on the salons that had enjoyed a male grooming mini-boom, bought 28 per cent more hair-care products at grocery and pharmacy chains.

“The old world was about instant gratification, but in the new world consumers are making a shopping list . . . They’re less impulsive,” Ms Thompson said. “Changes in shopping behaviour suggest some new habits may be emerging.”

The complex interchange of financial and emotional impulses is being felt even by the nation’s cats and dogs as consumers traded down from “wet” pet food, but then supplemented their animals’ more basic diets with snacks “so they still feel good about it for their animals”, Ms Thompson said…

A trend away from eating out led to a 70 per cent jump in the number of ice cream cakes sold, as more children’s birthday parties took place at home. Ready-to-eat popcorn purchases were up 55 per cent and sausage dinners up 27 per cent as more evenings were spent in front of the television.

Popcorn and sausage dinners notwithstanding, some Americans remain willing to pay up for a healthier diet. So-called performance drinks, such as protein smoothies and vitamin-enhanced water, were up 67 per cent, or $7m, at the expense of cola sales.

My own data point is I stopped at Whole Foods last night on the way back from visiting a buddy in the hospital, and the lines were long at 9:30 PM. But New York is afloat on TARP funds, and Whole Foods is still cheaper than ordering in.

Another factoid courtesy DoctoRx is that 63% of Americans expect to spend less on holiday presents this year than last year. And remember, last year people had just witnessed the meltdown. More findings:

The Discover U.S. Spending Monitor fell 3.2 points in October to 85.8 (based out of 100). The decline was primarily due to a rising number of consumers concerned about the state of the economy. Overall, 56 percent of consumers rated the economy as poor, a 4-point increase from September. Forty-six percent of consumers felt economic conditions were getting worse, a 3-point rise from September and the first increase reported since July.

Concern over personal finances also rose in October, as 27 percent rated their finances as poor, a 4-point increase from September. Forty-nine percent felt their finances were getting worse, a 1-point increase from September.

The decline in economic and financial confidence was greatest among women, which may be a concern for retailers heading into the holiday shopping season. The Monitor has shown that spending intentions are tied to economic and financial confidence, and so far, numbers suggest consumers, especially women, are anticipating cutting as much if not more of their holiday spending as they did last year . . .

For the seventh straight month, less than a majority of consumers have money left over after paying monthly bills. In October, a Monitor-low 44 percent planned on having money left over, a 3-point drop from September. Furthermore, 41 percent were expecting an added expense or income shortfall in the month ahead, a 3-point rise from last month and the highest since December 2008.

This is a pretty new survey, but the results are far from encouraging.

One week ago, I put up a post on the plight of a family that was at the end of its rope financially due to a lack of savings prior to the firing of the main income provider at the start of 2009. They had started using credit cards to pay for necessities, had paid on time until the previous month, and Bank of America stopped approving charges on the card.

This is the start of their story from last week:

Just like most everyone I know, my husband and I are in big debt with our credit card companies. My husband was laid off on New Year’s Eve last year. We were in total shock. I am retired from the USAF and receive a small monthly check, and my husband began collecting a meager unemployment check. He searched all over the US and made several trips out west knocking on doors and handing out his resume. NOTHING. Anyway, we had no saving and a little bit of stock which was cashed in at an all time low. No help there. Then we started living off our credit cards. Without them, we would have not made it, period. Our daughter and her family moved in upstairs and her husband was working of a whopping $8.50 an hour. No help there. So basically we were supporting them as well.

Two surprising things happened. First, one reader, a T. Rex Bean of Honolulu, offered to send the family $1000 if other readers would contribute. I said I would and encouraged others who were interested to ping me.

Second, that act of generosity seemed to particularly incense those inclined to take a dim view of those in debt, and some responded with vitriol, their comments having no grounding in anything more than prejudice, on why this family was having trouble making ends meet. Quite a few of the comments also reflected a considerable lack of understanding as to how the bottom half, income-wise, lives (for instance, saying that the couple “should” have several hundred thousand in savings plus that much in their home equity). A different theme was the couple should be on food stamps and the adult children and their kids should be on Medicare. One reader who rebutted that in comments, pointing out that the thresholds for assets and income were very low, was ignored, and a longer-form discussion came via e-mail:

In the US most aid programs for the poor are not oriented at all to the temporary poor. The way they are set up they don’t seem to treat “poorness” as a condition you are in but more as an identity. Prove you’re one of “them” and you’re all set. But the hassle of proving your poor identity is generally huge, so you want to do it only once. Once you are officially poor, you don’t want to be moving in and out of that designation and facing the paperwork blizzard over and over. It’s a real problem with the system. Treating “poor” as an aspect of identity makes people both reluctant to start getting help and then to stop getting help. The people I’ve known on Medicaid always took care to avoid a job that paid a little too much, lest they lose coverage.

There was also an assumption that the wife was on a full military pension. Note she said “small monthly check”. You need to do a full 20 years to get the inflation adjusted full pension; anything from 10 to 20 years is a % of final year pay.

This is a selection from comments:

What a whiny welfare biatch. I wonder how many Iraqis, Serbs, and Afghanis she killed at the USAF. You wanna do charity, give it to Iraqis, not American military welfare deadbeat crybabies. Dumb bitch.

Sounds like someone doesn’t know how to manage their money. I would bet they are making car payments and eat fast food at least 3 times a week. Probably have cable T.V. and deluxe cell phone plans. They probably get a new car like every two years. What happened to her reenlistment bonuses?

I think the family is at odds with the definition of ‘essential’, as are most Americans. Americans eat out often and call that essential. The food prepared at home is packaged in boxes for convenience: essential. Cell phones, well of course, they’re essential. Cable television? Ditto: essential, after all the cable is cheaper than Blockbuster late fees. Large hummer type transport? Essential: fought a war for that one. Sodas and chips? That’s called lunch.

And one she was a grifter:

I notice this story asking for ‘advice’ and not a hand-out managed to hit all the emotional triggers: military service, lay-off, always paid their bills before, adult son-in-law working valiantly at a low-paying job, grandchildren, no medical insurance…

I am aware that hard times happen to honest people. However the calculated pull for pity in this letter reads like a professional beggar.

Additionally, the letter implies it’s these older parents responsibility to help support the daughter’s family. It isn’t.

So what transpired? The couple is in the rural South, Georgia to be precise.

Even though quite a few readers sent payments (some wrote cover notes encouraging them to accept their offer), the checks were rejected. She only wanted help in dealing with Bank of America and was very grateful for the credit counseling leads some readers also sent along to her.

From her messages:

I’m such an idiot. We are not asking for ANYTHING but some advise on what ideas you might have to save us. My problem is the rising B of A bill, the extra charges being added on when I can’t make the minimum payment, the over the limit fees, late fees and that interest rate moving up and up. It’s got to stop and I don’t see an end to this madness. I just can’t understand why these banks that are being bailed out by us, the tax payers, are trying to bring everyone crashing down so they can collect their big bonuses or whatever they get. We have had it with banks and bonuses and the whole financial crisis. Thanks for all you help and the offer, but there are folks who have already defaulted on their cards and loans and have lost their homes and jobs. At least my husband did finally get a job last week after 10 1/2 months of looking from Baltimore to Berkeley, but the damage has already been done. Someone, somewhere must listen to the people because we are all going down, friends, neighbors, relatives, you name ‘em, we know ‘em….

From another message:

We haven’t eaten out in years, never pick up fast food, ever, don’t walk the malls, never received any public assistance, have a 2000 Tundra and a motorcycle to save on gas, make everything from scratch (even my own homemade laundry soap!)… frankly, I don’t know many folks around here that have saved for a stormy day. Saved? That’s a joke to most of us. We’ve gotten our phone disconnected and share a cell phone, we plan each and every trip to the store with a list of necessities, haven’t had a vacation in over 15 years, and up until my husband got a job last week, we were selling everything we could sell in the house on ebay. At least I am cleaning out the closets that haven’t been cleaned in years.

And this one:

We had lentils and cornbread last night…yum yum, and we’ll heat them up tonight as well. I did mention that my husband got his first paycheck last Friday. Sent from Heaven. We celebrated with brats and homemade kraut and hard rolls! Beats a t-bone any day in our book. Hubby is from Austria, so he can make some great kraut.

I should mention another little fact that goes along with all of this. Someone mentioned, maybe you, about proud folks in the south and everywhere. Well, my brother, who has an English degree from the University of GA and is a struggling wallpaper hanger, invited us in June to his son’s wedding in Savannah. He is my one and only nephew and I love him dearly, but we just could not afford to go. Savannah is about 4 hours from here, so gas to get down and back, hotel for a night, food and such…we just did not have the money. But instead of telling them the real story of why we could not make it, I gave them the BS excuse, hurt their feeling like you would not believe, and they haven’t spoken to us since! People just don’t want others, especially family, to know what kinds of problems they are going through.

Our neighbors across the street are struggling as well, but always have a cheery smile and something nice to say. Their son, who is a firefighter and his bride of one year just moved back in with them in September. Just couldn’t make it on their own. BUT, that’s the European way of life and we like it. Parents, grandparents, great grandparents, kids, grandkids, and maybe even great uncle Bernhardt live together. They help each other, eat out of the same pot, know each other’s ups and downs and so on. I was criticized for allowing my daughter, son-in-law and granddaughter to move in by some moron on the blog. Maybe they live in an adult only condo at Palm Beach and absolutely hate it when the grandkids come to visit. Interrupts their golf and bridge games perhaps. So those who criticize over half the US population for “over spending” and “living high on the hog” with credit cards are so out of touch with real America. They are a pathetic bunch of idiots.

I spoke with my son last night in Chicago who knows how we have been struggling. He told me to please hang in there for a few more months and his family has decided to move down to North Carolina out in the foothills somewhere. He wants us to all to pool our resources, get an old farmhouse we can fix up, and live off the land. Of course we will all have to find jobs, any jobs, but everyone is willing to work together for a common goal…the survival of our family and our community….

Now if only those jokers in Washington will pass the government option healthcare proposal, crack down on the credit card companies for their outrageous practices, and get us out of that war that the Bush regime got us into, maybe things will improve for the whole country, not just the top 3%.

I think quite a few readers owe her an apology. But I am also sure those readers are so locked into their Calvinist mindset that they will find some basis for criticizing this family. Some people seem constitutionally unable to admit that success and prosperity are not the result of hard work alone. I know plenty of people who are hardworking and talented. Some are making a fraction (and I mean less than 1/10) than people I know who strike me as less talented, often less natively intelligent, and certainly worked less hard. I know others who took considerable reversals through no fault of their own (including one in particular, a former high flier who has had to move back to his parent’s home, with the reasons including that he gave a lot of money to struggling relatives). Luck also plays a big role, what family you were born into, what breaks you got along the way, what landmines you avoided. It is part of the human condition that we lack foresight. Things that look like a logical choice can turn out badly for reasons beyond one’s control, and many people lack the luxury of choices to begin with.

This from another reader:

I am astonished at how many readers you have who have no idea whatever how the financial bottom fourth or fifth of America lives. When I was a kid in western Kentucky I had a few classmates who lived in unpainted old clapboard houses out in the country, in some cases
former slave quarters and so a century old. I remember one such house that even had a dirt floor. When I was little my mom’s parents lived in a tiny mountainside house in Appalachia that had no indoor
plumbing. They hand pumped water from a well and heated it on a coal stove, and for a toilet across the dirt road there was an outhouse that hung out over and dumped onto the weeds on the descending slope. Stunk to high heaven, of course, and there were lots of bugs. At eight years of age, having to go in the middle of the night armed only with a flashlight was a character-building experience.

Things are a little better in the rural south now, but they sure aren’t good, now that the small farms are gone. In my adult life I’ve seen one relative living in a broken-down trailer with a caved-in roof
and a goat tied up in the yard. And I’ve seen my cousin, with a small-college degree in math no less, getting by for a good while in the middle of nowhere, south Carolina on $9,000 a year from intermittent and part-time jobs. We can be all snooty about the poor not working hard enough, but I’ve also seen a sister quit a job pulling visibly diseased tissue off of Tyson chickens on a production line rather than get campylobacter one more time. We demand they live and act all middle class, but as a society we honestly don’t give them half a chance.

These guys who talk about saving hundreds of $thousands in small-town rural America are particularly irritating. How do you do that on $9K/year or $12K/year exactly? The US Census Bureau says in 2007 the bottom 20% of US households earned less than $19,178, so these are not trivial numbers of people. We never won our war on poverty really. We just forgot about it when the conservatives become obsessed with the hordes of welfare queens (and drag queens) that they imagined were filling our cities.

One of my big shocks when I started traveling more was to discover that compared to a lot of places a large part of the central and southern US (including parts of the upper Midwest) was actually what used to be called a third-world country, with way more poverty, illness, and and borderline illiteracy than Europe et al. Re literacy I remember in Turkey seeing Chekov plays for sale at a truck stop in the middle of nowhere. My Turkish friends thought it odd that I’d find that odd. To them it was perfectly reasonable that a truck driver might want something interesting to read.

One of the big lies about the poor or the struggling lower middle class is “surely they could have made something of themselves.” If you local school is lousy, how are you going to do that? I hate to say it, but from the time I have spent in Alabama, the level of education among average people (and I don’t mean poor, I mean average) is not hot at all. Multiply that across quite a few lower-income states.

Submitted by Edward harrison of Credit Writedowns

Yves covered this in an earlier post overnight. Here’s my take. This is probably my fourth post on the tangled web woven by securitization, which puts a considerable distance between home owners and mortgagees which own a mortgage.  The issue is causing huge problems in bankruptcy and foreclosure in courts around the U.S. 

Update: I now see Barry Ritholtz has a piece out on this as well.

This morning, Gretchen Morgenson has another good piece out describing how a judge nixed all claims by mortgagee which refused to modify a home owner’s mortgage.

The debtors’ revolt is on.

For decades, when troubled homeowners and banks battled over delinquent mortgages, it wasn’t a contest. Homes went into foreclosure, and lenders took control of the property.

On top of that, courts rubber-stamped the array of foreclosure charges that lenders heaped onto borrowers and took banks at their word when the lenders said they owned the mortgage notes underlying troubled properties.

In other words, with lenders in the driver’s seat, borrowers were run over, more often than not…

But some judges are starting to scrutinize the rules-don’t-matter methods used by lenders and their lawyers in the recent foreclosure wave. On occasion, lenders are even getting slapped around a bit.

One surprising smackdown occurred on Oct. 9 in federal bankruptcy court in the Southern District of New York. Ruling that a lender, PHH Mortgage, hadn’t proved its claim to a delinquent borrower’s home in White Plains, Judge Robert D. Drain wiped out a $461,263 mortgage debt on the property. That’s right: the mortgage debt disappeared, via a court order.

I see this as a watershed case in jurisprudence surrounding mortgage-related bankruptcies and foreclosures.  The reason this is huge is that it echoes the case in Kansas I have written about in two previous posts:

• “Why mortgages aren’t modified and what a ruling stopping foreclosures means”
• “What are the legal rights of lenders and homeowners in foreclosure?”)

At issue is the question of what legal rights do lenders or their agents have in foreclosure in the new byzantine world of securitized mortgages.  In the New York case the judge nixed the entire claim as the mortgagee could not prove it had legal claim to the mortgage note. With the mortgagee unable to show ownership, the homeowner might even be able to stay in his home mortgage-free, Morgenson attests. That’s huge – and we should definitely expect an appeal.

In the Kansas case, MERS, a mortgage registrar, and a second-mortgage mortgagee were not informed of the homeowners bankruptcy and disposition of assets and claims before judgment was made. Nevertheless, the district court, the appeals court AND the Kansas supreme court all upheld the original summary judgment arguing that MERS was not contingently necessary.  While I would expect this case to be appealed because of the precedent it could set, I don’t see how it can be overturned after affirmation in every court – that is except through a politicization of the verdict.

Notice how PHH and MERS, the two lender agents in each cases, are not the actual owners of the mortgages. They are the agents of the mortgagees. This is why these cases have a lot to do with securitization

See also: How much money is Wells Fargo really making? for how some of this affects earnings at money center banks.

Morgenson had another article of merit on this topic last week. See her piece The Mortgage Machine Backfires.  This could get interesting.

Oh, and in an unrelated case, but also involving bank customers successfuly contesting big finance, Citibank Belgium is being held liable by state prosecutors for duping its savers into taking safe money out of their savings account and investing it in Lehman Brothers. When Lehman went bust, 128 million euros of their savings money went poof. See my story here. Agence France Press has covered it, but don’t expect it to get huge coverage in the U.S. Mish thinks Citigroup is in “serious trouble” globally. So do I. Let the backlash against reckless finance begin.

Some readers like to demonize those who get in over there heads with debt as people who lived high on the hog and had their day of reckoning come upon them. This story, forwarded from a reader, shows the picture is more complicated.

When I was young, savings of six months of living expenses was considered to be a good cushion against risk. Is that true any more? I doubt it. Although this couple didn’t even have that much stashed away, the sort of buffers that worked a generation ago are insufficient now. People spend longer between jobs than in the past, and if/when they do find new work, it is often at a lower level of pay than before.

Job loss and major illness rather than an overly lavish lifestyle are still the biggest causes of bankruptcy. And now that the average tenure at a job has shrunken considerably, people need to have more in the way of savings, yet the high cost of unemployment means it is even harder than before to build up a big enough kitty.

Via one a correspondent:

Just like most everyone I know, my husband and I are in big debt with our credit card companies. My husband was laid off on New Year’s Eve last year. We were in total shock. I am retired from the USAF and receive a small monthly check, and my husband began collecting a meager unemployment check. He searched all over the US and made several trips out west knocking on doors and handing out his resume. NOTHING. Anyway, we had no saving and a little bit of stock which was cashed in at an all time low. No help there. Then we started living off our credit cards. Without them, we would have not made it, period. Our daughter and her family moved in upstairs and her husband was working of a whopping $8.50 an hour. No help there. So basically we were supporting them as well.

We have a mortgage payment of $1175 and $30,000 equity still in our home, but we are unable to refinance at a lower rate BECAUSE my hubby was unemployed!

Getting back to my B of A card, I have NEVER been late on a payment in 10 years (until last month). I have always paid more than the minimum (until January 1st). BUT, my interest rates have inched up and up in the last few months and then, BOW! I tried to use my card about 3 weeks ago at the grocery store and it was denied. Needless to say, I walked out without the food. We don’t waste anything, not money, not food, not heat or lights, nothing, but we are going down fast. The good news is that my husband got a job this week (at a much, much lower wage) and will finally get a pay next week after almost 10 months. The bad news is that B of A is killing me and will ruin me soon. I sent them a “token” $10 payment on the $450 monthly that I owed. The payment was on time, but the $10 sure didn’t make them happy. They slapped a “LATE FEE” of $39 even though my “payment” was not late AND of course the dreaded overdraft fee of $39. Yesterday I got a statement from them saying that my next payment due 11/11 is $950. I can see the snowball at the top of the hill ready to roll. What do I do? Do I revolt and refuse to pay? Do I keep sending them $10 as a promise to pay? OR do I write Kenneth Lewis and say I want some of their TARP/bonus money back so I can apply it to my B of A account? It’s not fair, although I know we lived off our credits cards and much of what I owe is money that I spent on essentials, BUT, the ultrahigh interests rates combined with their slap-on-every-extra-fee-we-can mentality is outrageous. We have worked all our lives to have and keep our excellent credit ratings and now all that is shot.

What do I do? What do we do? Like I mentioned before, my husband just got a job, but he will be making much, much less than he used to. Our mortgage is behind, the bank is on us about that, our credit cards a behind and they want even MORE blood, our kids and their families aren’t making it even though they work and pinch every penny, no insurance is within reach for them or their babies, so we have been shuffling payments to help our grandchildren, the list goes on and on and on and on…

Please, what do we do? How can we stop the madness that has engulfed us? We are good citizens, worked hard all our lives, paid all our bills on time and paid more than the minimum – until lately -, penny pinch, reheat the reheated leftovers, eat toast, never go out, never hurt anyone, love our family and served our country, and now this.

Please, what do we do?

Update 2:45 AM: Reader T. Rex Bean offered to make a generous contribution (see comments) if other readers participated. I will also make a donation, and hope you consider doing so as well.

If you would like to help, please e-mail me at yves@nakedcapitalism.com, and put “Stressed in America” in the headline. It may take me a day or so to get their address.

Update 12:50 PM: I am trying to get some leads for pro bono debt counseling. I do not have the coordinates yet, but the message my colleague forwarded indicates they are in Georgia (note it did not provide a full address). I had somehow misread it and got Florida in my head. Anyone who has any leads here, either for national services that would have sufficient local knowledge, or better yet, one within state, please ping me.

By John Bougearel, Director of Futures and Equity Research at Structural Logic.

The core of America is the middle class. And Harvard Law Professor and chair of the Congressional Oversight Panel COP ( the COP is to oversee TARP, the Troubled Assets Relief Program) Elizabeth Warren tells us that the core of America is being carved up, hollowed out. In her words, “I Believe Middle Class is Under Terrific Assault…Middle class became the turkey at the Thanksgiving dinner” of the financial elite. Elizabeth Warren is more than just right.

Call it for what it is. It has more names than Satan. Call it plundering. Call it pillaging. Call it extortion, Call it fraud. Call it racketeering. Call it the financial raping of the middle class. Call it criminal. Consider the following. Middle class never consented to this financial rape. They vehemently protested it when the gov’t first proposed a $700 bailout of the financial system called TARP in Septermber 2008. Yet what did Congress and our government do? They went ahead and did it anyway. This boils down to one thing, taxation without representation. Our votes do not matter anymore.

This is happening because the US government is allowing it to happen. It is one thing for the government to raise the social safety nets for the poor, elderly and such. It is entirely another to raise the social safety nets for the financial elitists at taxpayer expense. But that is exactly what the government has done in the past year. They have rescued a financial system at the expense of everyone else. Mythical constructs and messages that financial companies are Too Big to Fail, systemic risk is too great, No More Lehman Brothers have been created by the powers that be. And it is in the name of No More Lehman Brothers and Too Big to Fail that Middle Class America is being carved up and hollowed out.

Appearing in Michael Moore’s “Capitalism: A Love Story, Michael Moore asks Elizabeth Warren (regarding the $700 billion dollar taxpayer funded bailout of the financial elite) “Where’s are money? And Warren takes a deep breath, looks briefly over her left shoulder (as if she might find it there), and exhales “I don’t know.”

Washington Post’s Lois Romano asked Elizabeth Warren, “Why don’t you know?”

WARREN: We don’t know where the $700 billion dollars is because the system was initially designed to make sure that we didn’t know. When Secretary Paulson first put this money out into the banks, he didn’t ask for ‘what are you going to do with it.’ He didn’t put any restrictions on it. He didn’t put any tabs on where it was going to go. In other words, he didn’t ask…

US Secretary of the Treasury Hank Paulson did not ask the banks what they were going to do with our taxpayer money. The US treasury, given Congressional blessing, simply gave the banksters hundreds of billions of taxpayer dollars with no questions asked. This is wholesale taxation without representation.

So Romano asks Warren, “Are we, as an [economy] are we better off systemically now? Have we put things in place to prevent this from happening?” Warren replies “This really has me worried.” And it should have Warren worried because our Humpty Dumpty financial system had a great fall, and Humpty was put together again by all the King’s horses (read the US Treasury and Congress) and all the King’s men (read Uncle Sam’s taxpayers), Yet, Humpty Dumpty is still the same old fragile egg he was when he sat on a wall right before he had his great fall.

WARREN: A year ago the big concern was systemic risk and how to deal with ‘too big to fail’ firms…the big are bigger, we wiped out a lot of small folks and there’s more concentration” in the banking system.

And it is not just the Humpty Dumpty financial system that is so fragile.

WARREN: The way I see it is that the financial system itself is quite fragile, and that the underlying economy, the real economy, jobs, housing, household wealth, is still in a very perilous state.

So Lois Romano asks Warren, “Are we going to look back in two or three years at this TARP expenditure and say well, it worked.”

WARREN: “What is so astonishing about the first expenditures under TARP was that taxpayer dollars were put into financial institutions that were still, um, left all of their shareholders intact, that were still paying dividends, that paid their creditors 100 cents on the dollar. We put taxpayer money in without saying ‘you’ve got to use up everyone else’s money first.’ And once that’s the case, I don’t know how you ever put the genie back in the bottle. I don’t know how you ever persuade either a large corporation or the wider marketplace that if you can just get big enough and tie yourself to enough other important people, institutions, that if something goes wrong, the taxpayer will be behind you

That’s a game-changer. That is a whole different approach than any we’ve ever used before.

ROMANO: What more can we be doing to protect the middle class, to protect what Michael Moore refers to as the American Dream?

WARREN: “You know, the answer is we’re in trouble on so many fronts. In the 1950s and the 1960s, coming out of World War II, we said as a government and as a people, ‘what can we do to support the middle class?’ That’s what, FHA was to help people get into homes, right? VA, uh, G.I. loans on education. We looked at policies by whether they strengthened and support the middle class. Somewhere that began to change in the late 1970s and early 1980s, and the middle class instead became like a resource to be pulled from. They became the turkey at the Thanksgiving dinner. Who could carve off a piece, who could get this little piece, who could make a profit from this piece and that piece or squeeze down on the wages? And, the middle class has gotten shakier and shakier, hollowed out.

The consequences of that are far more than economic. The middle class is what makes us who we are. It affects the poor. A strong and vital middle class is a middle class that can offer a helping hand to the poor. A strong and vital middle class is a middle class that has room, is creating new jobs to, basically to suck the poor up out of poverty and into middle class positions. The middle class is what gives us political stability. It’s what gives us an America that’s all bought in to the whole process. That what we do is not just about a handful of folks at the top who profit from it. We all profit from it. And that’s why we work, and that’s why we vote, and that’s why we accept the outcome of elections, and, that’s why we’re safe to walk our streets, because we have a middle class for which this ultimately works, this country.

And every time we hollow that out. Every time we take away a little piece of that. We run the risk that some of what we understood as America, some of what we know as America, begins to die.
That’s what scares me.

Aaron Task interviewed Elizabeth Warren at The Economist’s Oct 15-16 “Buttonwood Gathering“ In that interview, Warren says,

The big banks always get what they want. They have all the money, all the lobbyists. And boy is that true on this one. There’s just not a lobby on the other side.

This is a moment when all around the country people are saying we’ve had it about up to here with these large financial institutions that want to write the rule then take our money. I find it astonishing that they have the nerve to show up and say, ‘I’m a big financial institution. I took your money. And now I’m going to lobby against anything that might offer some protection to ordinary families in this marketplace.

“This might be the time that the rules change.

The Buttonwood Gathering event took place over the weekend following Q3 earnings announcements from the big banks. Because of the taxpayer bailout of these big banks, some of them, namely JPM and GS are now enjoying record profits and will enjoy record bonuses this season. The irony is overwhelming that this is happening in 2009. Because of the failure of the financial system, more than 7 million middle class jobs have been lost, and the US economy is confronting double digit unemployment for the first time since 1982. Without taxpayer dollars, these record profits and record bonuses in 2009 would not even be possible for the big banks. Hell, without taxpayer dollars zombifying them with congressional and White House sanctioning, they’d have gone the way of the dinosaurs, the way of the buggy whips. That is the way history should have gone. But no, that is counterfactual now. There is something very wrong in America, the very way it is being run by government, and run over by the big banks. It is high time for middle class America to push back, precisely because our elected officials have not only failed to do so, but have legislated all of this to make it happen. Our government has become an active agent in the gutting of the middle class.
Commenting on Wall Street’ record 2009 bonuses Elizabeth Warren says she is

Wordless, Speechless. I do not understand how financial institutions could think they could take taxpayer money and turn around and act like it’s business as usual…I don’t understand how they can’t see that the world has changed in a fundamental way – it’s not business as usual.

While these critical interviews with Elizabeth Warren have been taking place in recent days, Naked Capitalism’s Yves Smith has been picking up threads of some push-back and and within Wall Street itself and amongst professionals on the periphery of WS, regarding the abuses of the financial elite awarding themselves record bonuses while the rest of the country goes to hell in a handbasket. From Yves,

There is a group of varying sizes, depending on the topic, that e-mails among itself, mainly professional investors, analysts, economists (I’m usually on the periphery but sometimes chime in). I never saw such an angry, active, and large thread about the Goldman BS fest today. Now if people who have not suffered much, and are presumably benefiting from the market recovery are furious, it isn’t hard to imagine that what looks like complacency in the heartlands may simply be contained rage looking for an outlet.

But per the social psychology research, this “you are in a minority, you are wrong” message DOES dissuade a lot of people. It is remarkably poisonous. And it discourages people from taking concrete action. I was surprised that some people bothered to comment on a post I put up yesterday, calling on people in the Chicago area to attend some peaceful demonstrations against the banking industry during the American Bankers Association national meeting, October 25 through 27. Some people weighed in, saying (basically) “don’t bother”.

I suppose it makes a difference whether one is old enough to remember the 1960s. Because people in large numbers got out and protested, two sets of changes that seemed impossible came about: civil rights for blacks and an end to the US involvement in Vietnam (if you read the histories, the military and intelligence experts were on the whole persuaded it was an unwinnable war, but it was seen as too costly to US prestige for America to withdraw).

And even if the effort you make narrowly is not successful (does any one person’s effort have much impact?) it breeds apathy and cynicism to suggest that doing nothing is the best course of action. If nothing else, it is better for one’s psyche to do what one can, however small, to make a difference.

Now America does not have a tradition of taking to the streets; demonstrations and rallies historically are working class affairs. But the middle class is on a path of downward mobility while the elites continue to take the cream. The widening gap might waken some impulses that have been dormant in the American psyche.

I happened to grow up in the sixties, on Sheridan Avenue in Chicago, and watched the protests march right past our homes. We stood on the street corner as kids and watched. We were too young to understand fully what was going on, but these were civil rights protests led by Martin Luther King. From Wikipedia:

The Chicago Freedom Movement, the most ambitious civil rights campaign in the North, lasted from mid-1965 to early 1967. It represented the alliance of the Southern Christian Leadership Conference (SCLC) and the Coordinating Council of Community Organizations (CCCO). In 1965, SCLC, led by Martin Luther King, Jr., was looking for a site to prove that nonviolent direct action could bring about social change outside of the South. Since 1962, the CCCO, a coalition of local civil rights and community groups, had responded to rising anger over racial inequality, especially in the public schools, in the city of Chicago to build the most sustained local civil rights movement in the North. The activism of the CCCO pulled SCLC to Chicago as did the work of Bernard LaFayette and James Bevel, two veterans of the southern civil rights movement, on the city’s west side.

In the early summer of 1966, it focused its attention on housing discrimination. By late July it was staging regular marches into all-white neighborhoods on the city’s southwest and northwest sides. The hostile response of white residents and the determination of civil rights activists to continue to crusade for open housing alarmed City Hall and attracted the attention of the national press. In mid-August, high-level negotiations began between city leaders, movement activists, and representatives of the Chicago Real Estate Board. On August 26, after the Chicago Freedom Movement had declared that it would march into Cicero , site of a fierce race riot in 1951, an agreement, consisting of positive steps to open up housing opportunities in metropolitan Chicago , was reached.

The Summit Agreement was the culmination of months of organizing and direct action. It did not, however, satisfy all activists, some of whom, in early September 1966, marched on Cicero . Furthermore, after the open-housing marches, the Chicago Freedom Movement lost its focus and momentum. By early 1967, Martin Luther King and SCLC had decided to train their energies on other targets, thus marking the end of this striking campaign.

The Chicago Freedom Movement helped train a spotlight on housing discrimination and thus shaped national debate that led to the federal Fair Housing Act of 1968. And a number of new organizations-such as the Kenwood-Oakland Community Organization, Operation Breadbasket (later Rainbow/PUSH Coalition), and the Leadership Council for Metropolitan Open Communities)-continued to fight against racial injustice.

Yves post on the anger within the financial industry this week sparked a lot of comment from her readership.

K Ackermann says:
“The public is not powerless. It is just unwilling. There is a huge difference, and I hope people like yourself start taking up the meme.”

K’s comment is interesting because he or she acknowledges in one sentence that the middle class is not powerless, just unwilling, and then in the next sentence hopes that someone else will take up the “meme.” First off this is not a “meme.” This is a cause, and clearly Ackermann is unwilling to partake in the cause.

Another commenter supports old-fashioned activism but fears “activism now is like shouting into the storm.” This is a good analogy of futility. But guess what, did MLK consider his cause futile, did not he have a raging storm against which he had to make his voice heard? Do we not have the same responsibility as middle class Americans to make our voices heard above the raging storm? Do we not have a Dylan Thomas onus of responsibility to not go gently into the night and rage against the dying of the light (read middle class America)?

Francois T says ”Why no mass protests? It’ll come; but only when the threats to survival become much more immediate, like barely any food on the table for entire tranches of citizens.

And even then; look at Mexico. The amount of poverty down there is pretty staggering by our own standards. See any mass protests?

Nope!

Ironically, I believe only a dedicated group of powerful renegades* could change something, like financing and make legit a 3rd party.

Now, THAT would be some change.

*I’m willing to bet my last n’gwee that there are quite a few very wealthy/powerful Americans that looks at the actual socio-economic landscape with a bewildered “WTF is going on here?” amazement mixed with deep disquiet. Whether they’re willing to do anything about it is another matter, but the first step to action is to become conscious of your surroundings.

Daniel de Paris wrote,

As a reader of Tocqueville and a complete parochial Frenchy, I believe that the effective American way – politically speaking – is local and grass-root.

There is practically no political action possible at Washington-level except for external affairs. Wars started in Washington can and have to be stopped in Washington.

The chances of the US are at grass-root level. Grass-root movements à la sixties to stop these crazy military budgets and grass-roots justice action for financial crime.

Skippy chimed in on Yves comments to juxtapose the difference between protest and pseudo-protest, , and to juxtapose the non-violent protest advocated by MLK vs the violent protest advocated by Malcolm X in the 1960s.
http://blogs.myspace.com/index.cfm?fuseaction=blog.view&friendId=62478301&blogId=364528702

“As you know, the non-violent protests MLK organized were starkly different from the riots celebrated and encouraged by Malcolm X. And there was also a huge difference in effectiveness. MLK’s civil rights movement changed the face of America, whereas the riots left in their wake bitterness and destruction and no concrete improvement. As MLK wrote in Where do we go from here: Chaos or Community: “If a method is not effective, no matter how much steam it releases, it is an expression of weakness, not of strength.”

On pseudo-protests Skippy quotes from Richard Bernstein’s Dictatorship of Virtue

The fact is that assaulting the establishment, declaiming against the racism and sexism of society, reiterating the approved phrases about oppression and exclusion, promising to uncover previously neglected worlds, these require not a jot of courage these days. These are the sanctioned activities of the counterestablishment, the gestures and idioms that gain approval and lead to good opportunities, to jobs, to prizes, to book contracts, to prominence in American life… There is no risk in smashing the icons. There are millions of dollars in foundation grants available for people who claim they are doing so.

Skippy continues:

“All of this government and private largess lavished on protesters and protest groups remained somewhat of a quandary for me until I moved to Mexico, where political theater has evolved into a most highly refined art form. Here the plutocrats fund the unions, the protesters, the press and the putative opposition party. You name it, they pay for it all. So I began to put two and two together about how that might work in the US as well.

But on the US scene, perhaps it was Hannah Arendt who was quickest to grasp what was going on:

No doubt, “violence pays,” but the trouble it pays indiscriminately, for “soul courses” and instruction in Swahili as well as for real reforms. And since the tactics of violence and disruption make sense only for short-term goals, it is even more likely, as was recently the case in the United States, that the established power will yield to nonsensical and obviously damaging demands—such as admitting students without the necessary qualifications and instructing them in non-existent subjects—if only such “reforms” can be made with comparative ease, than that violence will be effective with respect to the relatively long-term objective of structural change.

–Hannah Arendt, Crises of the Republic

We were all quick to pick up on the fact that the tea partiers and healthcare protesters were not protesters but pseudo-protesters. According to James Q. Wilson, writing in Political Organizations, pseudo-protest concerns itself not so much with concrete objectives as it does with venting frustrations and moral outrage. Pseudo-protest has as its goal the articulation of a broader cause, vision of the world, or ideology; whereas protest seeks more palpable rewards such as jobs, decent living wages, the end of segregation or the right to vote.

Protest is a moral act and an extremely effective agent of change. Pseudo-protest is therapy for persons with a chip on their shoulders or a job for the growing ranks of professional protesters. It is impotent or even an impediment to change.”

Skippy makes an important distinction, up until now, most of the protest with regard to the abuses heaped upon the middle class by Wall Street and the US government has mostly been of the “therapeutic-pseudo” kind. But real protest is, as Skippy says and MLK (and Ghandi and others) have proved, a moral act and an extremely effective agent of change. The 1960s was a civil rights movement for blacks and it worked for effective lasting change. A new civil rights movement is afoot today, but today its a civil rights movement for the middle class.

If we are to take up a civil rights movement for the middle class Richard Kline points out that we must dispel the illusions, deception, and lies from MSM and that one of “the function[s] of a citizen is first, to understand that the official view is certain to be a spun-sugar bouffant of lies, and then second, to gather information which tests its accuracy. This is not, actually, that hard to do, because real information about the world and its venal, sad, hilarious ways lies everywhere by the roadside for the taking. —But even that is too much of an effort for homo Americanus. The fact that most Americans get their ‘news’ from television, a substantiall fact-free action video, tells the story in words few enough to fit on a postcard. “La-La Land, wish you were here. XOXOXO, the Family.” *hmmphh*

Craazyman noted that the middle class crisis and issues that we are confronting today is very difficult to get our arms around, and so it leads to resignation amongst the middle class.

“The primary problem, I think, is a lack of a clear and convincing alternative economic approach to the one we now have.

The issues of central banking, credit, regulation and capital ratios are so esoteric and so remote that few Americans can really build a world view around them. Not out of lack of intelligence but simply because it’s a completely foreign language.

In Vietnam the body bags and grainy video from the jungle were so emotionally brutal that they had the force needed for change. Waterhosing the children of Alabama, the ugly angry mobs of hatefilled faces, they shocked anyone of good conscience. And the ideological foundation of the American political system was the rocket fuel for social equality.

But when it comes to money and wealth, there’s a strong historical sense that “our system” — loosely defined as government-supported and managed free market free trade capitalism — has proven itself better than all the alternatives. This is quite subjective in the particulars and details, but the big picture — compared to communist Russia, China, the third world, Africa and even the slightly sclerotic “old Europe” or the sort of strange and rough post-communist Europe. None compete in the popular mind as an attractive alternative.

“If a few executives in New York make millions pulling the levers of our way of life, then, well, it’s a shame and they’re a bunch of assholes, but at the end of the day, what can we do about it?” This, I think, is sort of a distillation of the communal mind’s point of view at a subliminal level.

There is nothing in this crisis to grab on to — intellectually and ideologically — for most people. Just a stewing frustrated rage that something isn’t right with the big picture. And so we have a bewildering range of targets for rage including too much government, too little government, taxes too low, taxes too high, not enough bank lending, too much bank lending.

There’s no center, no point of communal traction that could be sloganeered into a reference point to rally around.

And so people acquiesce to a state of affairs that they know is messed up, but they don’t know quite why or what to do about it– other than tune out the morons on TV and try to survive the night in the jungle. And they don’t want to risk a wholesale upheaval that might make things worse.

It’s truly a policy wonk’s crisis. A crisis that requires some real statesmen and women who have political power, to step up and steer. Sadly, they seem few and far between.”

Picking up on Craazyman’s thread, Downsouth said,

“Ah, the sewing of hoplessness and disillusionment so thte people turn to defeatism or nihilism: It’s a method of social control as old as the hills, the ruling classes having deployed some of their finest thinkers to its engenderment and perpetuation.

It is a testament to the intelligence and thoroughness of the ruling elite that the ancient tactics of social control, long used in religion, have now been extended to the world of “science,” infusing the academe with pseudo-scientific dogmas such as the “finding” that nothing possibly can be done to correct the problem of free-riding in society.

“Rage is by no means an automatic reaction to misery and suffering as such;” Arendt observes in Crises of the Republic, “no one reacts with rage to an incurable disease or to an earthquake or, for that matter, to social conditions that seem to be unchangeable.”

Arendt thus gives us the reason why, first through religion and then later through “science,” the ruling elite hoped to persuade us that the city of this world is a “compact of injustice,” that “society is consigned to the devil” and that the social problem is “insoluble on any ethical basis”.

To reiterate what Yves said in her post

“I suppose it makes a difference whether one is old enough to remember the 1960s. Because people in large numbers got out and protested, two sets of changes that seemed impossible came about: civil rights for blacks and an end to the US involvement in Vietnam…”

Cullpepper wrote: Ho, ho, ho, Look out Yves, you just became the new face of the neo-populist movement.” I would not go so far as to say Yves is the face of the populist movement. There many faces on the populist movement to effect change. Elizabeth Warren is a far more visible persona and champion of the middle class. In fact, Warren has written two books on why the middle class never had it so bad!

And then there is the documentarist Michael Moore and journalists Lois Romano, Aaron Task, and so many countless others. Many folks are simply beginning to act in concert and at the same time. The catalyst for a middle class civil rights movement has arrived.

To that end, economists William Black and Dean Baker are hosting a demonstration in Chicago to remonstrate against Wall Street on Oct 25-27 in Chicago at the American Bankers Association annual meeting.

The sessions are organized by a coalition of community, consumer and labor organizations and are called “Showdown in Chicago“.

A number of commentators are planning a series of related posts and hopefully op-ed and news articles around this time. I will be attending, too and I look forward to seeing everyone there who can attend.

The Forgotten Man

This is the time to stand up for ourselves and be heard. Who are we? We are the Forgotten Man that Yale professor and sociologist William Graham Sumner wrote about at the end of the nineteenth century:
“The type and formula of most schemes of philanthropy or humanitarianism is this: A and B put their heads together to decide what C shall be made to do for D. The radical vice of all these schemes, from a sociological point of view, is that C is not allowed a voice in the matter, and his position, character, and interests, as well as the ultimate effects on society through C’s interests, are entirely overlooked. I call C the Forgotten Man.”

“As soon as A observes something which seems to him to be wrong, from which X is suffering, A talks it over with B, and A and B then propose to get a law passed to remedy the evil and help X. Their law always proposes to determine what C shall do for X, or in the better case, what A, B, and C shall do for X…. [W]hat I want to do is to look up C…. He is the man who never is thought of.”

“He works, he votes, generally he prays–but he always pays. . . .”

In closing, I leave you with a quote from Michael Moore’s documentary to ponder:

“There has got to be some kind of rebellion between the people who have nothing and the people who have got it all.” Think about that and come on out this weekend!

Go to The Showdown website subtitled, “The American People vs Wall Street Banks.” , it is very cool. Clipped from their website:

I’m of two minds about taking up this theme, since stating what ought to be obvious but is nevertheless unpleasant and inconvenient is apt to get one branded as lunatic fringe.

Access journalism has created what is in many respects a controlled press. And that matters because people are far more suggestible than most of us wants to admit to ourselves.

Let us start with the cheerleading in the media over Wall Street, and in particular, Goldman earnings. Matt Taibbi, in “Good News on Wall Street Means… What Exactly?,” tells us why this is so distorted:

It’s literally amazing to me that our press corps hasn’t yet managed to draw a distinction between good news on Wall Street for companies like Goldman, and good news in reality.

I watched carefully the reporting of the Dow breaking 10,000 the other day and not anywhere did I see a major news organization include a paragraph of the “On the other hand, so fucking what?” sort, one that might point out that unemployment is still at a staggering high, foreclosures are racing along at a terrifying clip, and real people are struggling more than ever. In fact the dichotomy between the economic health of ordinary people and the traditional “market indicators” is not merely a non-story, it is a sort of taboo — unmentionable in major news coverage.

The press has been on a downslope for at least a decade, as a result of strained budgets and vastly more effective government and business spin control (and it was already pretty good at that, see the BBC series, The Century of the Self, via Google video, for a real eye-opener). I met a reporter who had been overseas for six years, opening an important foreign office for the Wall Street Journal. He was stunned when he came back in 1999 to see how much reporting had changed in his absence. He said it was impossible to get to the bottom of most stories in a normal news cycle because companies had become very sophisticated in controlling their message and access.

I couldn’t tell immediately, but one of my friends remarked in 2000 that the reporting was increasingly reminiscent of what she had grown up with in communist Poland. The state of the US media became evident to me when I lived in Australia during the run-up and the first two years of the Gulf War. I would regularly e-mail people in the States about stories I thought were important and I suspected might not be getting much play in the US. My correspondents were media junkies. 85% of the time, a story that had gotten widespread coverage in Australia appeared not to have been released in the US. And the other 15%, it didn’t get much attention (for instance, buried in the middle of the first section of the New York Times). And remember, Australia was an ally and sent troops to the Iraq.

Why does this matter? Because influence via the adept packaging of information and images is very effective. The creator of the public relations industry, Edward Bernays, was the nephew of Freud and set about to use the subconscious to shape public opinion. His books included This Business of Propaganda and Manipulating Public Opinion. But it doesn’t fit our self image of being masters of our own view to recognize that we might be swayed.

In his classic, Influence: The Art of Persuasion, Robert Cialdini describes how salesmen can adeptly use social conditioning and norms to elicit favorable responses. Cialdini, a social psychologist, notes that even though he is aware of these techniques, he is unable to resist them.

One experiment from cognitive bias research assembles a number of people in a room together, but all save one are actors. Everyone in the room is shown a series of lines and asked to say out loud which is the shortest (the background design makes it a bit difficult to discern without concentrating a bit). For the first five or six rounds, the actors (and the lone experiment subject) pick the shortest one. Then, the actors start calling the LONGEST line the shortest one. After a few round s of this (and inevitably, the one not in on the game looks puzzled) about one-third of the experiment subjects start agreeing with the crowd, even though that answer is clearly incorrect. And there is boatloads of other evidence of suggestibility. For instance, numerous studies have found that if a number of people tell an individual he looks tired or sick, he will start feeling tired or sick, as the case may be.

Back to the main theme: the media dares not say anything too negative about financial services firms or their government operatives lest they lose access. The private sector has learned the lesson of the Bush Administration, that the threat of freezing a reporter out is a powerful weapon. I have had some well connected readers tell of story ideas that they served up in some detail that the media would not touch out of fear of alienating their sources. This is the sort of thing that one associates with banana republics, but we have been operating on that level for quite some time.

Not surprisingly, the government and large corporations were firmly in charge of the message during the crisis (remember the gap between the MSM reporting and the anger in the populace over the TARP, which was finally noted ONLY when Congress responded to a barrage of calls and e-mails and voted down TARP v. 1.0?) and perhaps more important, in pushing the, “move past that car wreck, things are really better” message. From the Pew Research Center:

Three storylines have dominated: efforts to help revive the banking sector, the battle over the stimulus package and the struggles of the U.S. auto industry. Together they accounted for nearly 40% of the economic coverage from February 1 through August 31. Other topics related to the crisis have been covered much less. As an example, all the reporting of retail sales, food prices, the impact of the crisis on Social Security and Medicare, its effect on education and the implications for health care combined accounted for just over 2% of all the economic coverage.

Actions by government officials and business leaders drove much of the coverage. The White House and federal agencies alone initiated nearly a third (32%) of economic stories studied through July 3. Business triggered another 21%. About a quarter of the stories (23%) was initiated by the press itself and did not rely on an external news trigger. Ordinary citizens and union workers combined to act as the catalyst for only 2% of the stories about the economy.

Fully 76% of the datelines on economic stories studied during the first five months of the Obama presidency were New York (44%) or metro Washington D.C. (32%). Only about one-fifth (21%) of the stories originated in any other city in the U.S., and about a quarter of those emanated from two other major media centers: Atlanta and Los Angeles…

Once the economic situation showed some signs of improvement—and the political fights over legislative action subsided—media coverage began to diminish. After accounting for 46% of the overall news coverage in February and March, for instance, coverage of the economic crisis dropped by more than half (to 21% of the newshole studied) from April through June. And in July and August, it fell even further (to 16%). The clearest example came in cable news. Once the political battles subsided, coverage fell by about two-thirds from March to April.

Notice even Pew has fallen for the party line a bit. The stock market rally started in March. That is not a sign of economic improvement (Krugman has said something along the lines of “The stock market has predicted 20 of the past 9 recoveries.”).

So what do we have? A media that predominantly bases its stories on what it is fed because it has to. Ever-leaner staffing, compressed news cycles, and access journalism all conspire to drive reporters to focus on the “must cover” news, which is to a large degree influenced by the parties that initiate the story. And that means they are increasingly in an echo chamber, spending so much time with the influential sources they feel they must cover that they start to be swayed by them. It is less intense, but not dissimilar to the effect achieved when reporters are embedded in military units. The journalists often wind up adopting the views of the people they associate with frequently (I am sure readers will add more nefarious theories in comments, but the point here is a simple: an up the center description of what has happened to the media shows it has fallen under the sway of powerful interests).

Now how do we get to the propaganda part? Not only, per Taibbi, are we getting the view of the economy from the vantage of the bankers, as opposed to a broad swathe of the population, but we now we have the media (well, this example is that odd hybrid, an MSM blog) telling us there is no outrage. From the Los Angeles Times (hat tip JohnD):

Except for Michael Moore, whose new movie posits that capitalism is one big Ponzi scheme, the news Wednesday that banks are thriving and that Wall Street analysts are in line for big bonuses this year seemed to land with all the political weight of a dull thud.

Oh sure, the chairman of the House Oversight and Government Reform Committee said he’ll soon hold hearings on executive pay at firms that got taxpayer bailout money, like AIG and Bank of America….

But with the Dow Jones hitting 10,000 and the economy stepping back from the precipice of last fall’s collapse, there was little of that tea-party outrage that might have been expected.

Have we moved on? Arguing that the country is now more concerned with Afghanistan and healthcare, the Wall Street Journal said of bonus outrage: “That’s so last March.”

Maybe taxpayers have simply given up on Washington’s efforts to corral Wall Street.

Now why is this sort of thing (and the media was full of more subtle versions, of happy talk re Dow 10,000 and Goldman earnings) more pernicious than it might appear?

The message, quite overly, is: if you are pissed, you are in a minority. The country has moved on. Things are getting better, get with the program. Now I saw the polar opposite today. There is a group of varying sizes, depending on the topic, that e-mails among itself, mainly professional investors, analysts, economists (I’m usually on the periphery but sometimes chime in). I never saw such an angry, active, and large thread about the Goldman BS fest today. Now if people who have not suffered much, and are presumably benefitting from the market recovery are furious, it isn’t hard to imagine that what looks like complacency in the heartlands may simply be contained rage looking for an outlet.

But per the social psychology research, this “you are in a minority, you are wrong” message DOES dissuade a lot of people. It is remarkably poisonous. And it discourages people from taking concrete action. I was surprised that some people bothered to comment on a post I put up yesterday, calling on people in the Chicago area to attend some peaceful demonstrations against the banking industry during the American Bankers Association national meeting, October 25 through 27. Some people weighed in, saying (basically) “don’t bother”.

I suppose it makes a difference whether one is old enough to remember the 1960s. Because people in large numbers got out and protested, two sets of changes that seemed impossible came about: civil rights for blacks and an end to the US involvement in Vietnam (if you read the histories, the military and intelligence experts were on the whole persuaded it was an unwinnable war, but it was seen as too costly to US prestige for America to withdraw).

And even if the effort you make narrowly is not successful (does any one person’s effort have much impact?) it breeds apathy and cynicism to suggest that doing nothing is the best course of action. If nothing else, it is better for one’s psyche to do what one can, however small, to make a difference.

Now America does not have a tradition of taking to the streets; demonstrations and rallies historically are working class affairs. But the middle class is on a path of downward mobility while the elites continue to take the cream. The widening gap might waken some impulses that have been dormant in the American psyche.

Submitted by Edward Harrison of Credit Writedowns.

In the 1987 movie classic Wall Street, the sinister protagonist Gordon Gekko played by Michael Douglas gives this famous quote:

In the last seven deals that I’ve been involved with, there were 2.5 million stockholders who have made a pretax profit of 12 billion dollars. Thank you. I am not a destroyer of companies. I am a liberator of them! The point is, ladies and gentleman, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind.

Since that time, this quote has become famous as the “Greed is Good” philosophy of capitalism.  Gekko symbolizes an era in which it is believed that the free hand of market capitalism will steer the economy efficiently and effectively with little need for government intervention or regulatory oversight. Instead, so the theory goes, we are each allowed encouraged to pursue our manifest destiny of getting filthy rich. Screw everybody else.

Well, let me tell you something greed is not good.  Greed is corrosive and it is tearing at the very fabric of our democracy. A generation ago most people in America worked for a few institutions in their lifetimes.  Many had employer-paid healthcare and employer-financed defined benefit pension plans.

But, since the 1980s the moorings have come off and set us adrift in a world of economic insecurity.

• Job insecurity has increased dramatically, especially as reflected in part work statistics(see here and here). This has resulted in deteriorating health and declining work safety.
• The healthcare debate is front and center in the US today. Yet, incongruously, the focus has mainly been on how ‘socialist’ proposed remedies appear.
• And defined benefit has been almost completely replaced with 401(k) plans, leaving retirees to face potential economic hardship in old age.

This is “the Great Risk shift” in which corporations in pursuit of shareholder value (remember ‘greed is good’) have sloughed off as many economic risks onto ordinary Americans as they could reasonably get away with. This is crony capitalism, not free market capitalism. And a anesthetized American public has put up with this. I continue to ask myself why.

Maslow’s hierarchy of needs was very much on display earlier in the year as we entered the worst of this financial crisis. Everyone felt vulnerable. But now that recession is over, it does seem that America is returning to business as usual, both on Wall Street and on Main Street.

What I find most galling is that just one year ago Barack Obama was saying, “Elect me! Elect me! I am change you can believe in. But, no sooner does he enter office and he continues the massive bailout of the financial services industry that was begun by the predecessor administration. And today there are really no substantive regulatory changes on offer by this Administration. It was this same support for the financial elite at the expense of the middle class which has led to a widening gulf in income and wealth.

And by the way, if you haven’t noticed, real incomes are lower now than 36 years ago.  So, this is certainly not change I believe in…yet. And given many of the players today are the same as they were before the crisis, don’t expect any real change. Apparently the only thing that is going to induce change in Washington (or London) is a horrific depression.

So, what about greed then? Roger Bootle takes this on in his latest book, “The Trouble with Markets,” which I highlighted earlier in the week. Here is how the Telegraph quotes him:

The free-market vigilantes are already rushing to defend the unfettered market system. Their defence is based on one or other of three arguments. First, the market solution is to let failing financial firms fail. If the state intervenes to stop this, the blame for the resulting mess cannot be laid at the door of the market system. Second, banking has been a heavily regulated activity. The regulators have failed in their job. Third, the monetary policy authorities should have paid more attention to the growth of money and credit and the resulting inflation of the property market bubble.

In this way, they try to argue that what seems on the face of it to be a failure of markets is in fact a failure of government. So the solution, they say, is not less freedom for markets but more.

These people are dangerous. The idea of letting the financial system implode and then waiting for the market to bring spontaneous, healthy revival out of the wreckage might read well on the pages of a book, but in the real world it would bring human misery on a gigantic scale. In today’s society, people simply will not tolerate it. If that is what the market system is about then they will have none of it; and rightly so.

Have a go at the full article linked below. Bootle makes some very good points. I liked his last book, “Money for Nothing”. So I suspect his new book is a good read too.

Greed isn’t good– it’s dangerous – Telegraph

Quelle horreur, some smart people are starting to question whether banking serves a redeeming social function.

Of course, in the abstract, it does. Banking (or more accurately, extending credit) is essential for commerce. But any essential support function, if it overpriced in relationship to its true value, becomes a drag on the productive economy. And our modern system is extracting a very large toll relative to its actual worth.

One argument against banking comes from Roger Bootle at the Telegraph (hat tip Swedish Lex); the other from Bill Black. Bootie makes a broader, philosophical argument, starting by distinguishing activities as creative (making something out of nothing and increasing net enjoyment) versus distributive (something that merely shifts benefits from one party or group to another). Activities fall along a spectrum, and Bootle asserts:

Successful societies maximise the creative and minimise the distributive. Societies where everyone can only achieve gains at the expense of others are by definition impoverished. They are also usually intensely violent.

He assesses modern finance against this standard and not surprisingly, finds it sorely wanting:

A leading British journalist recently decried the widespread condemnation of bankers’ and hedge fund executives’ high remuneration on the grounds that these people, it said, were “the wealth creators”…This completely misses the point….the question is, what has the process that generated this money contributed to the common weal?

Much of what goes on in financial markets belongs right at the purely distributive end. The gains to one party reflect the losses to another, and the vast fees and charges racked up in the process end up being paid by Joe Public…

Even what the great investors do belongs at the distributive end of the spectrum. The genius of the great speculative investors is to see what others do not, or to see it earlier. That’s all. This is a skill…I am not convinced, though, of the social worth of such a skill, still less of the wisdom of encouraging society’s brightest and the best to try to perfect it.

This distinction between creative and distributive goes some way to explaining why the financial sector has become so large in relation to GDP – and why those working in it get paid so much. Even when a certain sort of financial activity is purely distributive, the returns to the winning parties are so enormous that the activity is immensely seductive – and the professionals who appear to be responsible for securing these gains are highly sought after and highly rewarded….

And we need to consider the identity of the investors who are making a lower return to make it possible for hedge funds and their like to make a higher return. They are the investors in slow-moving and restricted institutions such as pension funds and insurance companies, or central banks whose market activities are dictated by some objective of public policy, rather than private gain.

Yet there are reasons why we should want such institutions to be this way. Pensioners do not want their pension funds to be run like hedge funds – or their insurance companies, or their central banks. So we have allowed, and even encouraged, a system to develop in which clever people make huge amounts of money out of institutions that, for reasons of public policy, we constrain in a way that allows scope for such profits to be made. Is that clever or what?

Perhaps the greatest problems are caused by the interaction between financial markets and the real economy. There, time horizons are longer, price adjustments are more sluggish, and motivations less single-mindedly selfish. And so much the better – for them and for us. But how are they able to withstand the onrush of supercharged greed that floods out at them from the financial markets? If we think that it is right and proper – and economically advantageous – that some parts of the economic system should not be organised like investment banks, then we should make sure that they are protected from those parts of the system that are organised like investment banks.

Bill Black, in “How the Servant Became a Predator: Finance’s Five Fatal Flaws,” at New Deal 2.0 is far more casutic. He starts by taking a position near and dear to the Japanese, that financial firms should not be very profitable, because high profits mean they were operating at the expense of the “real” economy (of course, the Japanese bank managed to wreck the economy anyhow, but that was partly if not largely the result of rapidly deregulating a very primitive banking sector. And I am not exaggerating in my characterization; recall I consulted to them in the mid-1980s. They had NO concept of cash flow based lending, for instance).

Black’s key arguments:

….the finance sector is worse than parasitic. In the title of his recent book, The Predator State, James Galbraith aptly names the problem. The financial sector functions as the sharp canines that the predator state uses to rend the nation. In addition to siphoning off capital for its own benefit, the finance sector misallocates the remaining capital in ways that harm the real economy…:

• Corporate stock repurchases and grants of stock to officers have exceeded new capital raised by the U.S. capital markets this decade. That means that the capital markets decapitalize the real economy….

• The U.S. real economy suffers from critical shortages of employees with strong mathematical, engineering, and scientific backgrounds. Graduates in these three fields all too frequently choose careers in finance rather than the real economy because the financial sector provides far greater executive compensation….

• The financial sector’s fixation on accounting earnings leads it to pressure U.S manufacturing and service firms to export jobs abroad, to deny capital to firms that are unionized, and to encourage firms to use foreign tax havens to evade paying U.S. taxes.

• It misallocates capital by creating recurrent financial bubbles. Instead of flowing to the places where it will be most useful to the real economy, capital gets directed to the investments that create the greatest fraudulent accounting gains…. Unless there is effective regulation and prosecution, this misallocation creates an epidemic of accounting control fraud that hyper-inflates financial bubbles….

• Because the financial sector cares almost exclusively about high accounting yields and “profits”, it misallocates capital away from firms and entrepreneurs that could best improve the real economy (e.g., by reducing short-term profits through funding the expensive research & development that can produce innovative goods and superior sustainability) and could best reduce poverty and inequality (e.g., through microcredit finance that would put the “Payday lenders” and predatory mortgage lenders out of business).

• It misallocates capital by securing enormous governmental subsidies for financial firms, particularly those that have the greatest political power and would otherwise fail due to incompetence and fraud.

The remarkable thing is that despite the ample evidence of the damage wrought by the financial sector, it has managed to secure even greater rewards for its predation and incompetence. But that is largely a function of media coverage, which has presented a picture flattering to the Obama Administration and and the perps. A Pew Research Center study on the coverage of the crisis concluded:

The gravest economic crisis since the Great Depression has been covered in the media largely from the top down, told primarily from the perspective of the Obama Administration and big business, and reflected the voices and ideas of people in institutions more than those of everyday Americans…

Citizens may be the primary victims of the downturn, but they have not been not the primary actors in the media depiction of it.

A PEJ content analysis of media coverage of the economy during the first half of 2009 also found that the mainstream press focused on a relatively small number of major story lines, mostly generating from two cities, the country’s political and financial capitals.

A companion analysis of a broader array of media using new “meme tracker” technology developed at Cornell University finds that phrases and ideas that reverberated most in the coverage came early on, mostly from government, particularly from the president and the chairman of the Federal Reserve, and that few Republicans in Congress articulated any memes that got much traction.

As the story moved away from Washington—and the news about the economy seemed to improve—the amount of coverage of the economy also dropped off substantially.

So with vested interests firmly in control of spin, is it any wonder that most people have been lulled into complacency, or at worst, sullen resignation?