Relevant and even prescient commentary on news, politics and the economy.

Tax cuts for jobs. NOT! Another tax cut that is not paying out

First a qualification. I am basing the following on info I found on the net. If the info is wrong, then I stand corrected as to who is or is not paying but not as to what happens when a large entity does not pay. The specific city and company are used purely for example purpose because of familiarity. What follows could be any municipality with a similar size company calling it home.
 
Lately in the city of my flower shop the big talk is a $10 million deficit in the school department. It’s a funny story. See, the department hired a couple people and these people, along with the help of the city council and the school committee the budget numbers became not real. They budgeted $59 million but have spent $66.6 million. The total $10 million is a 2 year deficit. The funny part…we had a surplus. Though, where the surplus went to no one knows. The school committee insists there was no funny business and even voted down an investigation. So, if there was no funny business, then who gained and what did they gain by covering up a deficit? What benefit is there about lying about a deficit?
 
Of course, this is also a state funding issue. You see, the city has the typical city size problems that the surrounding town do not have. This article notes:
 
 
“The committee chair pointed out that Lincoln has a budget of $48 million to educate half the students Woonsocket teaches with a mere $59 million.
 
“And they don’t have the special needs we have. They don’t even have a quarter of the IEPs we deal with,” she said.”
 
 
On top of this, we’re one of those states that has been passing ALEX type legislation. In particular we passed the one that thinks it is smart of a state to set a cap on how much a municipality can raise taxes in any given year. The city notes that default is an option, but is currently begging the state legislature to allow a supplemental tax bill.

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Panel Discussion with: Krugman, Sachs, Phelps, Soros

Just wanted to let everyone know about a presentation that aired on Cspan’s Book TV.  It is a 2 hour panel discussion titles: Global Economy: Crisis Without End.  It was held 2/17/12.   Click hereto bring up the show.
 
What I found most interesting was the different perspectives between Krugman and Sachs. I’m not sure, but I don’t think either realized they were talking about the “crisis” from 2 different perspectives which leads to 2 different answers to what needs to be done. Thus, they come across as if the other is wrong, when in my opinion, they are both correct. Krugman says we need to do more now. Yes we do. Sach’s says we need to take the long view and start changing the direction we are going, namely calling for higher revenue raising by the government to be spent on the nation’s infrastructure, and he did not just mean physical infrastructure. I guess you would say he was calling for the government folks to get real about raising capital and then doing capital expenditures. Not exactly the thinking I would have expected from Sach’s considering his start in economic life: Shock Therapy.
 
Maybe I was just seeing the difference in Keynes vs Neoclassic Econ meets Bono?  So as much as Sach’s appears to be calling for the correct long term solution, I don’t trust him as the one to lead the charge.
 
It was a very good discussion and there is more there than what I have keyed on.

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Due Process: Holder vs Colbert. Art or Reality. Choose.

This is the object: 

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury,… nor be deprived of life, liberty, or property, without due process of law;
 
It’s all one sentence. Any questions?
 

This is Art:

The lyrics of Grand Funk Railroad’s Paranoid
Did you ever have that feeling in your life
That someone was watching you?
You don’t have no reason that’s right
But still he’s there watching you
Someone is waiting just outside the door
To take you away
Everybody knows just what he’s there for
To take you away
 
vs the lyrics of Red Rider’s Lunatic Fringe 
Lunatic Fringe – in the twilight’s last gleaming
This is open season, but you won’t get too far
‘Cause you got to blame someone for your own confusion
We’re all on guard this time against the Final Solution
all on guard this time
 

This is the reality. 44% of our wealth is due to rule of law.

 
World Bank study on wealth in 2005 stated:
 
Worldwide, the study finds, “natural capital accounts for 5 percent of total wealth, produced capital for 18 percent, and intangible capital 77 percent.” “Rich countries are largely rich because of the skills of their populations and the quality of the institutions supporting economic activity,” the study concludes. According to Hamilton’s figures, the rule of law explains 57 percent of countries’ intangible capital. Education accounts for 36 percent.”
 
Rule of law equates to trust.
 
 
 

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Defining Rich VI: 1936 tax tables

Today we are continuing to look at the historical tax tables to see how we viewed and possibly defined rich. I introduced this idea with my post: Defining Rich III.
 
I found a source for all sorts of historical data from the Census Bureau. You can down load it or the better way is to click on the PDF file which brings up the Intro and then click on any of the listings of the table of contents which takes you to that set of PDF data.  For this posting regarding income data I am using this section.
 
The average weekly income for all manufacturing was $22.82 per week on 39.1 hours work. The highest paid was printing/publishing newspapers/periodicals at $35.15 per week on 37 hours work. The lowest was cotton goods at $13.80 per week on 37.5 hours of work.
 
In the non-manufacturing sector the I calculated the average weekly income to be $23.76 on 40.28 hours of work. The highest earnings were electric power/lights manufactured gas at $31.70 per week on 40.2 hours work. The lowest was hotels at $13.97 per week on 48.3 hours of work. For the Walmart greeter retail trade-general merchandising it was $17.51 per week on 40.8 hours work.
 
There were regional differences also. The most glaring is the north/south difference. The hourly wage ranges from 12.5 cents to 19 cents less if you worked in the south. The greatest differences being between the East South Central and the Pacific North.

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Social Security as you know it, it’s over, forget about it.

I caught a bit of Jennifer Granholm’s The War Room for 2/23/12.  She was talking gasoline prices and had Ron Klain on for his ideas. He is a past chief of staff for Gore and Biden as VP’s. Mr. Klain also published his thought at Bloomberg2/20/12.
This post is not about solving the rising gasoline costs. This post is about the further screwing of the 99% by further reducing their security from the risk of life and living.
Let’s cut to the chase: 
One idea might be a “pocketbook protection” plan, which would work as follows: If the average price of gas exceeds $4 a gallon, an additional, automatic payroll tax cut of 1 percent would kick in, as much as $50 per month, per person. The cut would stay in place for at least 90 days; it would disappear when the price fell below $4.00 per gallon.
There are three advantages to this approach. First, because the plan is of limited duration and is capped at $50 a month, its cost is relatively modest — about $5 billion a month, or $20 billion total, assuming the usual four-month gas-price surge. Second, because it isn’t a reduction in gas taxes, it doesn’t weaken any incentives for fuel conservation or efficiency: All workers get $50 to soften the blow of higher gas prices, but the less fuel they use, the more money they save. And third, the relief provides the greatest relative help to lower-income workers who need gas to commute and feel the price pinch the hardest.
I have to assume our Colberly’s head has just popped. What Mr. Klain has proposed is the exact danger many have warned about regarding the use of SS as a means to make up for what is a major functional problem of our current economy: lack of share of income to the masses.

I have pointed out many times that we can not make up for the $1.1 to $1.4 trillion per year of income no longer in the hands of the 99% that is in the hands of the 1% with tax reductions. It can not be done. With that fact, considering taxation reduction in any form as a method to address this specific issue is nothing more than the continuation of the false economy that financialization created as observed from the position of those in the labor part of the economy. It quite literally is the government now using the mathematical gymnastics pioneered by Wall Street to trick the masses into believing that home equity was the same as earned income. Getting a tax cut anywhere is not the same as receiving a greater share of the nation’s income.  It is money, by the way, that you are more than justified to receive because you helped to create it. The rich used to have an opportunity to relearn this lesson every time there was a major strike, say the NY City trash collectors going on strike.
People, I hope we have learned that one’s home, your house has a more important roll to play in your life other than that of asset appreciation. The home is one of the foundations used to reduce the risk of living, of having a life: shelter. Social Security is another one of those life’s risk reducing foundations: longevity. I have asked often here: How many times to do we have to relearn a lesson?
Using SS as a means to offset the results created over the long term from bad policy is the polluting of a very good policy. We can look at the housing crisis as another already experienced pollution. The good policy was promoting home ownership. The bad policy was setting up an economy that changed the perception of home ownership from a life risk reduction activity to an asset building activity. Now that SS has been used once as a solution to an unrelated problem and extended once in a manor that moves it further from the original purpose (reduction of risk of living), with Mr. Klain’s proposal, the use of SS as a back stop for non-related policy results has become an unquestioned and considered reasonable use.
Mr. Klain’s proposal so exemplifies what our politico’s now consider acceptable for SS’s use that he even proposes to pay for it via a general funding solution: 
The plan could be almost entirely paid for with a modest, no-loopholes surcharge on corporate taxes on profit derived from the higher gas prices. The administration would be able to avoid pejorative terms such as “windfall” or “excess” profit tax, because the tax is neither confiscatory nor punitive. With higher gas prices, oil companies will make record profit — and a partial surcharge will still leave that profit at record high levels. In other words, the plan isn’t vulnerable to suggestions of creeping, soak-the-rich redistribution. It would leave in place all incentives for oil companies to increase production, do more research and development, and explore alternative fuels. But a modest surcharge would help fund at least a partial pocketbook protection program to make sure the cost of the oil companies’ gain isn’t excessive pain for the rest of us.
Just to be clear, that Mr. Klain proposes using SS for anything other than SS is the problem. The only difference in such action compared to the housing crisis which was tied to the removal of specific banking regulation is that it took us 10 year or so to experience the warning of Senator Byron Dorgan.

For those warning about the proverbial slippery slope phenomenon of using SS as a back stop for bad policy results leading to furthering the destruction of SS, it’s only been about 3 years since this application of SS first became a reality. This use is now acceptable. Social Security has now officially been changed from a purpose specific funded program to an general revenue program.  The establishment is so comfortable within this frame of use for SS we get a proposal such as Mr. Klain’s.   We also have on the record a warning in the vein of Senator Dorgan’s  from Senator Harkin:
“This Congress will be making a grave mistake — a grave mistake — and reinforcing a dangerous precedent,” Harkin said in a dramatic Senate floor speech late Thursday.
Mr. Klain freely proposing another application of a SS tax cut is proof of the truth to Senator Harkin’s warning.  The precedent stands.  It is “codified”.   And, with this precedent the conservative/monied movement has neutralized another barrier protecting SS and it’s status as the end-all be-all of the New Deal: the Democratic Party.
The Movement has also successfully completed the instillation of it’s virus known as Financialization into the nervous system of our government. Social Security no longer thinks as the mind of one living in a labor economy; as the 99%.  It thinks as the mind of one living in a money from money economy; as the 1%.

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A oh, Some in Europe can’t take the pressure

Seems the austerity thingy is starting to hurt where it really counts. Just read via the AP:
… and amid growing concern in Europe that austerity aimed at cutting ballooning deficits may also be choking growth.
A dozen European Union leaders, including British Prime Minister David Cameron and Italian Premier Mario Monti, called Monday for an open-markets strategy to stimulate growth and jolt the region out of its economic doldrums.
“We meet in Brussels at a perilous moment for economies across Europe,” the leaders said. “Growth has stalled. Unemployment is rising. Citizens and businesses are facing their toughest conditions for years. ”
Of course their solution is “Free the Kraken!*“: 
The letter urges European nations to deregulate their service, research and energy sectors, forge trade ties with growing markets including China, Russia and South America — and even contemplate a free trade agreement with the United States.
How scared are they? They are this frightened: 
“Implicit guarantees to always rescue banks, which distort the single market, should be reduced,” the letter said. “Banks, not taxpayers, should be responsible for bearing the costs of the risks they take.”
Be still my beating heart, be still.

Of course, all of this is related to Greece. I found that the British paper, the Daily Telegraph is liveposting daily on the Debt Crisis:
“Live coverage of the international debt crisis and rollercoaster financial markets in the eurozone and US.” From today’s postings:
20.06 Jeremy Warner [financial editor] writes that the US has proved that the brutality of hire and fire really does work:
It is a simple fact of life that business is more prone to hire if it is allowed to fire. The major risk to business investment, which is that of an ongoing workforce liability, is thereby removed.
Vince Cable’s proposed shake-up of employment law is in truth of much more importance to the future of the UK economy than faffing around either with credit easing or squandering £12bn on a temporary tax cut. It’s vitally important that the task is not ducked.
And yet, considering the 12’s concern about austerity to cut debt and banks taking the hit, there was this today: 
22.02 Here we go. Eurozone ministers agree on ways to cut Greek debt to 123/124pc of GDP by 2020, aiming to go close to 120pc. Eurozone in talks with representatives of private sector about finding further debt relief. Issue of ECB forgoing profits on its holdings of Greek bonds remains a sticking point.
Coming soon to a theater near you!  The Son of Austerity.
*Kraken: In modern German, Krake (plural and declined singular: Kraken) means octopus but can also refer to the legendary Kraken.

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Michael Hudson on Greece

Greece and what is happening to it is not getting enough attention.  What is happening there, in my opinion is an example of the human race at it’s worse.  I do not see the implementation of austerity as an experiment.  I see it as just one more step by those in the world controlling banking to mold the world into its self image.

This is a link to an 11 minute interview of Michael Hudson:  Michael Hudson is President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City… 

In this interview, Prof. Hudson suggests that Greece is the test to see how far the world’s money people can push in preparations for further advancement within the EU.  Interestingly he notes, that in the US, because we privatized our utilities years ago, we are not seeing the same drive of austerity as we are seeing in Europe, including England.  Though we should not be complaisant.

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Welfare, I’m not hurting from it and neither are you.

A good friend and I got into an email debate. He sent me the latest message regarding how wonderful it is that Florida is going to be drug testing welfare recipients. I responded that I’ll consider the policy when we start testing all the CEO’s who get welfare for their sector of the economy, the lawyers, judges and all country club members.
I also noted welfare is not the problem He noted it’s not “the” problem, but it is “a” problem and he knows this from talking to people. I know of welfare too. I have served on two nonprofit boards, one for substance abuse and the other The Providence Center. My family adopted a family when I was in junior high. We had foster children. I was a day counselor for 2 weeks in the summer of ’73 for 7 to 12 year olds from 3 of the most horrible housing developments in the city of Providence. We had the “Institute” literally right around the corner from where I lived.  My daughter is doing a year with NeighborWorks America
Welfare is not the problem. But, my friend is a very smart person and an engineer, so I needed some numbers. Using this site I checked out what the ratio of spending on Family and Children and Housing is to our GDP. I used GDP and not the overall budget because hey, we all worked to earn that money and it might as well be used for something that is heart warming.  The following numbers are total national spending (Fed, State, Local).

The year 1962 is the first year that there is spending listed for both Family and Children and Housing. Prior to that only Housing is listed as having spending. For 1962, the combined total ratio was 0.0027. That is 0.27% of our GDP was spend on families, children and housing. I started with 1970 and went forward using the endings of the presidential terms starting with 1980.
1970: 0.0035
1980: 0.0092
1988: 0.0093
1992: 0.0134
2000: 0.0092
2008: 0.0097
2010: 0.0141
First of all, these are miniscule percentages of our GDP. Second, it sure looks to me like the best way to solve the “welfare problem” is to solve the economic problem.
Of course, this means nothing if we don’t have other government spending patterns to compare too. I mean, how do we know if welfare is “out of control” if we can’t compare it to other spending? The same data set has two other categories: General Government and Other Spending. You can click on each to see the sub categories. But, just so you know General Government consists of Executive and Legislative organ, Financial and General services. Other does not include: Pensions, Education, Health, Defense, Protection, Transportation or interest. Other is just that: Other. Here is how the numbers look.
 
This is how the numbers flow as log function.

 

Call me stupid, but it looks to me like what we spend on welfare is not much more than what the government is spending on just doing the government thingy, unless of course people can’t get a job. Interestingly enough, the share of GDP spent on welfare in 1992 and 2010 is the same. In fact, at the peak of unemployment of the 2001 recession which was 2003, we spent just 0.0098 on welfare.
Here is another comparison. In 2009 we spent $167 billion on Family/Children and Housing. That year, we also spent $161 billion in the Other category of “Economic Affairs”. I don’t know what that is, but if it has anything to do with what we are experiencing I don’t think we got our money’s worth. This item went from -7.0 in 1997 to 7.8 in 2002 to 17.5 in 2005 to 1.3 in 2007 back to 17.7 in 2008. It landed at -79.7 in 2010. Hummmmmmmmm. I think Glen Beck would like this category. You know, who’s been playing with the money in the cookie jar? In fact, why did we not know that a cookie jar exists?
It doesn’t make me feel good to think that we spend about as much on the top office operations of this country as we spend on helping people. Think about it. What percentage of the “welfare problem” do
you believe is a problem? You know those drug addled lazy moochers who are preventing all us moral and hardworking folks from living the good life of our congress persons. Be careful now. This is a trick question. See, it won’t take much of a “problem” subtracted from what we spend to find ourselves spending less to take care of families and their children than we spend on the top office operations in this nation. That’s just plain being cheap. Down right, out and out cheap SOB’s even if we leave in all of the “problem”.

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Corporate/shareholder value, energy market and global warming

Updated: Renewable Germany bailing out Nuclear France

 
I just read the following in an article by a Mr. Bill McKibben and thought it to be an interesting perspective on why climate change/global warming is being so vigorously denied.

If we spew 565 gigatons more carbon into the atmosphere, we’ll quite possibly go right past that reddest of red lines. But the oil companies, private and state-owned, have current reserves on the books equivalent to 2,795 gigatons — five times more than we can ever safely burn. It has to stay in the ground.
Put another way, in ecological terms it would be extremely prudent to write off $20 trillion worth of those reserves. In economic terms, of course, it would be a disaster, first and foremost for shareholders and executives of companies like ExxonMobil (and people in places like Venezuela).
If you run an oil company, this sort of write-off is the disastrous future staring you in the face as soon as climate change is taken as seriously as it should be, and that’s far scarier than drought and flood. It’s why you’ll do anything — including fund an endless campaigns of lies — to avoid coming to terms with its reality.
Never thought of the resistance to moving away from carbon fuels as an issue of having to write off company value in order to save the planet. As shown with the housing bubble, writing off inflated value (inflated for what ever reason) is a rather difficult thing to do. I mean, when you have so much down stream of that artificial value dependent on it (think currency based on oil), the engineering challenge is like playing Jenga only no one will be laughing if you fail and the tower falls.  Also, you have a timer running in this version of Jenga.

I believe Mr. McKibben refers to the issue as a bubble in that the current price of raw carbon fuel is based on the idea that fuel in general is becoming less available. But fuel or energy is not less available. It is only one source of fuel that is becoming less in quantity. The only means to keep this conflation of less carbon based energy means less energy fuel in total is to deny the application of science in the energy market place as it relates to a competitor product. It is artificial price manipulation via psych-ops.
In other words, the only way to keep the carbon energy market alive is to not have a free energy market. Part of assuring not having a free energy market is to deny the need for a free energy market, thus, deny climate change do to human extraction of carbon from the ground and it’s ever increasing rate of conversion to a gas of CO2. It is artificial price manipulation via psych-ops.
Let’s take the write off issue one step further. How does the value of a company such as Exxon/Mobil which is based on ever rising price do to ever declining product with ever increasing demand keep this model for valuing the company if the product becomes essentially limitless? Now we’re up against our entire paradigm as to how we understand free market value and thus construct value.
Carbon based energy is currently view as land. No new land is being made and demand is rising thus ever increasing value. The proper model for carbon fuel is that of a market where over time the product becomes obsolete. This I think is the fault in thinking that has created the aberrant paradigm which lead to the bubble Mr. McKibben sees. Our entire energy market, viewed in this way is a complete illusion as seen from the owners side of the energy equation and a complete delusion as seen from the market economist side of the energy equation, though I would say the economist delusion has lead the owners to create their illusion.
Just one more problem with running an economy based on the efficiency of money as oppose to the efficiency of people.

Update:

From Real Economics I read an article from Der Spiegel regarding France struggling with electricity shortages do to the cold spell. Seem France, not normally experiencing cold winters uses electricity for heating homes. This year they needed 7000 megawatts per hour more power. 100 gigawatts one evening was need, the equivalent of 80 nuclear power plants. Germany was sending them a net 3000 megawatts/hour because:
It is interesting, said the federal environment minister, that Germany, especially in these days with a very high demand, can even export power—thanks to photovoltaic and wind energy. “We had in the last days a capacity of up to 10,000 megawatts of solar power, which corresponds to the output of ten nuclear power plants, and up to 11,000 megawatts of wind power,” said Röttgen.
Read another take here at Lenz Blog.
This is significant, because back in May of 2011 all the rage was how France was bailing out Germany after Germany announced its nuclear generation shut down. As with Jonathan Larson at Real Economics, no one is saying this means we can scrap all other power generation tomorrow as this Spiegel article notes the lack of solar generated power in Germany during a spell this winter and the need to import electricity.
The January article (not pro solar at all) notes:
Until now, Merkel had consistently touted the environmental sector’s “opportunities for exports, development, technology and jobs.” But now even members of her own staff are calling it a massive money pit.

How quickly fortunes can change. All the more reason to view carbon based energy in the energy market as a product that can be made obsolescent.  You know, a true free market with competition which purpose is to serves the efficiency of people and not money. Maybe then even Germany would not be so reactionary when their plan stumbles.  Heck, it took the Wright Brothers over a 1000 flights, just to learn how to fly!  Over 200 wings and airfoils!  They did not concern themselves with the issue of scaling it up for use by a planet of 6 billion people.

 
Stick to your plan Germany because you have the correct intention.

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Interview of Mr. John Reed regarding banking fixing the game

In case you are not aware, Bill Moyers is back and he doing his best work to date concentrating on our the changing of the rules regarding the economy. This episode where he interviews John Reed, former Citi Bank CEO and current MIT chair is most telling as it relates to the issue of why we as a nation need to do what is required by law: investigate and prosecute as the investigations dictate.

First, let me just say, you need to watch the interview. What is most telling for me is the denial that still exists in Mr. Reed. Sure, he acknowledges that it all went wrong, but it is done in the temperance of “mistake”: 

1. an error in action, calculation, opinion, or judgment caused by poor reasoning, carelessness, insufficient knowledge, etc.
2. a misunderstanding or misconception.

Here, in the interview is what puts the delusion of self preservation in applying the word “mistake” to the decisions that lead to what we have today, and I’m not just talking recession:

Setting up the question to Mr. Reed by showing a video clip, SENATOR BYRON DORGAN: (Speaking on Senate Floor) What does it mean if we have all this concentration and merger activity? Well, the bigger they are, the less likely this government can allow them to fail.
BILL MOYERS: Were you aware of the few senators who raised real concerns about removing Glass-Steagall, about what would happen?
JOHN REED: No one that I’m aware of it saw it clearly. You point out to some Senators and Congressmen who did, but somehow we described them peripheral. And I simply said, “They’re wrong.” Turned out they weren’t.
SENATOR BYRON DORGAN: (Speaking on Senate Floor) I think we will in ten years’ time look back and say, “We should not have done that, because we forgot the lessons of the past.”

The issue of calling it a “mistake” becomes even clearer when you watch the interview of Senator Dorgan which follows Mr. Reed. This is why you need to watch it. Mr Reed knows what happened. He knows why it happened. I am certain he knows where the culpability lays. But, as they say in our neck of the woods: He wouldn’t say “shit” even if he had a mouthful.

What happened and what these people did was not a benign experience as the word “mistake” implies and as Mr. Reed is using it. It was intentional and wanton action taken on behalf of money. (See below: Where their heads were at)

Explaining Glass Steagall’s importance beyond not letting commercial banking marry investment banking.

JOHN REED: Well, that and even more importantly, or equally importantly, since the FDIC came into existence at approximately a similar time where the government was guaranteeing deposits so that people didn’t lose if a bank got into trouble.

But not only did they want to keep the banks from the business for reasons of not risking the money. They didn’t want them to use the guarantee that the government provided for those deposits to leverage their position. Because, you know, if you have a deposit base that’s guaranteed by the government, it sure puts you at a great advantage in terms of going into the market and playing around.
Regarding the take down of Glass Steagall

JOHN REED: When Sandy approached me on the merger [Travelers/Citi] I knew that it was right on the forefront of the legal thing. … And what we basically were told was, “If you all want to do this within the two years we’ll get the law changed.”
BILL MOYERS: But you got the blessing in this two-year period of President Clinton, of the Fed, of–
JOHN REED: We had that blessing prior to.
JOHN REED: Yes. In other words, I went with Sandy to call on Chairman Greenspan. We told him we were contemplating this merger. But that it would required that the Fed would be prepared to grant us permission. And we were assured that they would.
We went and saw the Chairman of the House Banking Committee, the Chairman of the Senate Banking Committee. And we said we’re talking about this merger but it could not take place if we were not assured that it would be approved at the Congressional level. We talked to the Secretary of the Treasury, I don’t recall–
BILL MOYERS: Robert Rubin? He was the Secretary of the Treasury at the time.
JOHN REED: Yeah, we would’ve spoken to him, I’m sure. And had Bob Rubin said, “No, the Treasury feels this is wrong,” we would’ve been careful. Because obviously, the Treasury recommends to the President on an issue of this sort. And there was no argument. No one said, “We’ll have to think about it.” And so a consensus built up. I don’t think it started in the Fed. I would guess it started in the industry, it certainly got into the Congress.

Regarding where their heads were at

JOHN REED: Which happened, yeah. I mean if you had asked me under oath, what probability I would have given that you would have gotten the whole group of Wall Street participants to get it wrong so to speak, I would have said zero.
BILL MOYERS: What do you think they saw that Wall Street didn’t see?
JOHN REED: They simply didn’t participate in the exuberance.
But I do think that, you know, this setting up the deck of cards so that we could produce what we currently are trying to withdraw from. Turns out to have been something that the word disaster is maybe not strong enough. (“Criminal” is the word we all know he is resisting.)
JOHN REED: We were carried away by the enthusiasm. And like everything else, you know, once you start you probably go a little further than you should have.
JOHN REED: Sandy Weil. I mean, his whole life was to accumulate money. And he said, “John, we could be so rich.” Being rich never crossed my mind as an objective value. I almost was embarrassed that somebody would say out loud. It might be happening but you wouldn’t want to say it.
JOHN REED: Yeah, Sandy Weil. And I sort of say, “Sandy, you know, we didn’t do very well.” And he’s not comfortable with that conversation at all. I think he would still defend that it was a good merger, it just went off the tracks afterwards. I —

Regarding the economics of it

JOHN REED:No, no. It’s not something you’d like to end your career with. That is for sure. No, look. We got carried away.It wasn’t any small group, it was a consensus that reached the press, it reached the political world. It certainly had reached the intellectual world. I’m now, as you know, at MIT,and I say to some of my academic friends that the intellectual underpinnings of this was created at MIT and places like that, I mean—
BILL MOYERS: With the technology of the computers?
JOHN REED: Well, no. It’s all of this mathematics of finance and the presumption in much of this mathematics that you can capture risk by looking at historical volatility and so forth and so on.
BILL MOYERS: Are you saying, suggesting that — the chairman of the board of MIT’s suggesting –that human intelligence no longer runs our financial system?
JOHN REED: Well, it’s a little wisdom balance that judgment wouldn’t hurt.

The Criminality of it (at least as I see it): See: Regarding the take down of Glass Steagall above

Showing an historical video clip, Mr. Reed speaking with Sandy Wiel

JOHN REED: Sandy called his friend the President last night and invited me to join in on the conversation and we had a good talk. So the President was in fact told last evening about what was going to happen.

JOHN REED: Well, they originated and sold into the marketplace things that should never have been originated.
BILL MOYERS: Derivatives, unregulated derivatives?
JOHN REED: Well, it was the excess mortgages, the no-doc, low-doc mortgages. And then the derivatives were a byproduct. Once you had those, then you could chop ’em up and so forth. And of course they had changed their mindset. They were in the business to make money, period.

The psyche that is protecting the conscience: Note his choice of words

JOHN REED: You’re– I mean, a consensusdeveloped. The fact that we took it [regulation, Glass Steagall] out was a byproduct of this mistaken beliefin this modern financial system that was, quote, “more efficient,” was very lucrative for the United States and the U.S. economy in global terms.
And which was supposed to handle risk better. In fact, it handled risk worse. I mean, this is what the facts are because there was a much greater concentration of risk created. And so we got it wrong.
But the restraint of the government and it’s agencies disappeared in the enthusiasm. (Yeah, just a “byproduct”)
And so it was this combination of the participants getting carried away, the normal checks and balances that should exist against participants.
And the thing that is astounding, frankly, and there’s a lesson here that we probably haven’t yet learned, is that the system can get it so wrong. It wasn’t–
BILL MOYERS: So wrong?
JOHN REED: It wasn’t that there was one or two or institutions that, you know, got carried away and did stupid things. It was, we all did. And then the whole system came down. You know, it became illiquid, the government stepped in. Had the government not stepped in, it really would have come to an end.

 

BILL MOYERS: But they left in place the very people who had driven the ship into the iceberg.
JOHN REED: I’m quite surprised at that. It clearly has not been a clean sweep. In other words, those of us who made mistakes, and so forth and so on, are still floating around the system. And–
BILL MOYERS: Floating it? You’re running it.
JOHN REED: Well, I am not, but —
BILL MOYERS: You’re not running it, they’re running it.
JOHN REED: But there are many who are. I wasn’t involved, obviously. I had retired in the year 2000. We’re now talking 2008. So I was a knowledgeable spectator, but certainly not a participant. I was quite surprised because, frankly, the worst thing that can happen to a businessman is to go bankrupt. (Shades of Greenspan confessions?) That’s the sign of ultimate failure. You ran a business and it was unable to succeed under the terms and conditions of private capital. Namely, you went bankrupt.
It’s not a crime. But it certainly is a mistake. And these companies, even though they didn’t have to file for bankruptcy, de facto went bankrupt. And so the managements and the boards and the regulators should have, in my mind stepped aside.
BILL MOYERS: Sounds to me like you’re calling the Glass-Steagall Act back from the grave.
JOHN REED: I think I am. (At this point, he still could not say it “shit”.)

There is more in the interview. You need to see and hear it to understand. I think Mr. Reed is struggling with his conscience and wanting to clear it versus what I believe he feels is a real risk of getting tied up with the Justice Department. It has to be working on him. Though I interpret an air of feeling protected in Mr Reed do to his own wealth. As much as he knows wrong and not a mistake was done, he has no experience of the anxiety as what those in the labor economy are experiencing. He is still in denial to an extent which stops him from using his position to truly work to correct this wrong. Or maybe he just is not of the character to participate on the just side of the fight.
Mr. Reed does get one thing correct:

BILL MOYERS But when the financial community can buy the rules they want —
JOHN REED: Then you’ve got an unstable situation. That’s an intolerable situation. I mean, obviously.

He knows.  He knows that regulation is a necessity. As the head of MIT, he could be doing so much more.
Come-on Mr. Reed, destiny is calling you.

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