Monday, November 21, 2011

Today's links

1--European Democracies Effectively Dwindle, Seeking Alpha


Excerpt: It appears that people finally understand that the situation in Ireland (and in Greece and Portugal, perhaps Italy as well) is one in which the people have lost sovereignty to the troika. These countries cannot be counted as democracies anymore, since the representatives of the people cannot determine the government budget – the troika can veto anything they want. A recent article in the Irish Times made clear where Irish domestic policy is set now:

THE GOVERNMENT has complained to the European Commission over the release in Germany of a document disclosing confidential details about new taxes to be introduced in Ireland over the next two years.

In a deeply embarrassing development the document – identifying austerity measures of €3.8 billion in next month’s budget and €3.5 billion in budget 2013 – was made public after being shown to the finance committee of the German Bundestag yesterday.

All of this wouldn’t be that bad if at least at the European level we had democracy. However, we haven’t. The European Commission is not a government elected by the representatives people, but by the heads of state of the member countries. The parliament itself is seriously short on rights, like that to of starting a vote of no confidence in order to get rid of the government. Also, there is some serious misrepresentation of different nationalities.

The way Europe is administered now, with financial markets pressuring countries until they submit to control of the troika, is leading to a form of government which we haven’t seen in Western Europe for a long time. And this is not a coincidence, since the way things happen could be stopped by relatively easily to implement changes of the rules. It is just that those in power don’t want to change the rules, as the recent ‘reform’ plans on ratings and the equalization of purchasing government bonds with a deadly sin show.

The Irish, nevertheless, surely remember what it feels like. They know their history well.

2-- God bless income disparity, FT.Alphaville

Excerpt: Dennis Gartman, of Gartman Letter fame, (on income disparity)

We celebrate income disparity and we applaud the growing margins between the bottom 20% of American society and the upper 20% for it is evidence of what has made America a great country. It is the chance to have a huge income… to make something of one’s self; to begin a business and become a millionaire legally and on one’s own that separates the US from most other nations of the world. Do we feel bad for the growing gap between the rich and the poor in the US? Of course not; we celebrate it, for we were poor once and we are reasonably wealthy now. We did it on our own, by the sheet dint of will, tenacity, street smarts and the like. That is why immigrants come to the US: to join the disparate income earners at the upper levels of society and to leave poverty behind. Income inequality? Give us a break? God bless income disparity and those who have succeeded, and shame upon the OWS crowd who take us to task for our success and wallow in their own failure. Income disparity? Feh! What we despise is government that imposes rules that prohibit or make it difficult to make even more money; to employ even more people; to give even more sums to the charities of our choice. That is what we despise… oh, and next question please. (Is Dennis a tad tone deaf?)

3--Tackling Income Inequality, LAURA D’ANDREA TYSON, NY Times

Excerpt: Income and wealth disparities have reached levels not seen in the United States since the Roaring Twenties. And the concentration of income and wealth contributed to the speculative excesses that brought on the 2008 financial crisis (see Robert Reich’s “Aftershock” and Raghuram Rajan’s “Fault Lines”).

According to a recent report by the Congressional Budget Office, rising income inequality is a long-term trend that began in the late 1970s and strengthened during the last two decades. The report confirms the protesters’ belief that the rising gap between the income of the top 1 percent and the income of everyone else is a major factor behind escalating inequality.

In the last 20 years, inequality has been largely a story of a small elite – not just the top 1 percent, but the top 0.1 percent – pulling away from everyone else in every source of household income: labor income, capital income and business income....

The top 1 percent’s share of national income has also been rising in most other advanced industrial countries, but it is by far the largest and has grown the most in the United States (see Jacob Hacker and Paul Pierson’s “Winner-Take-All Politics”).

Why have incomes of those in the top 1 percent soared? Their occupations provide some clues. From 1979 to 2005, nonfinancial executives, managers and supervisors accounted for 31 percent of the top 1 percent, medical professionals for 16 percent, financial professionals for 14 percent and lawyers for 8 percent.

Together, executives, managers, supervisors and financial professionals accounted for 60 percent of the increase in the top 1 percent’s income, with a widening compensation differential between those in the financial sector and those in other sectors of the economy after 1990....

According to the Congressional Budget Office, from 2002 to 2007 more than four-fifths of the increase in income inequality was the result of an increase in the share of household income from capital gains, with the remainder the result of an increase in other forms of capital income.

The top 0.1 percent earns about half of all capital gains, and such gains account for about 60 percent of the income of the top 400 taxpayers.

While serving as President Clinton’s national economic adviser, I led a study by his economic team of the likely effects of reducing the rate. We concluded that a cut would decrease future tax revenue, would contribute to rising inequality and would not increase saving and investment as its advocates asserted. Despite these warnings, in 1997 the president agreed to cut the rate to 20 percent, as part of a budget compromise with the Republican Congress.

Then, with Democratic support, President Bush reduced the tax rate on capital gains and other forms of capital income to a record low of 15 percent in 2003. Under the “carried interest” provisions of United States tax law, this rate also applied to fees earned by hedge fund and private equity managers, a rapidly rising cohort within the top 1 percent.

As a result of these changes, along with President Bush’s across-the-board cuts in income tax rates, federal taxes as a share of household income fell for the top 1 percent. Over all, the Bush tax cuts were the largest — not only in dollar terms but also as a percentage of income — for high-income households and increased the concentration of after-tax income at the top. Far from curbing escalating inequality, the Bush tax cuts exacerbated the problem.

A credible plan to reduce the long-run deficit requires a significant increase in revenue. Polls indicate that the majority of Americans, like the Wall Street protesters, believe that higher taxes on the rich are warranted both to reduce the deficit and to contain mounting inequality. I agree.

Restoring the top income tax rates and capital gains and dividends tax rates to their levels under President Clinton, as President Obama has repeatedly proposed, would be useful first steps....

I believe that this rate should be reduced – a position advocated by both President Obama and former President Clinton in his new book. Raising tax rates on capital gains and dividends to the levels under President Clinton would curb the growth of income for the top 1 percent and could finance a substantial cut in the corporate tax rate that would bolster wages and job opportunities for American workers.

4--Chinese Fund Managers Sentenced to Death after Cheating Investors out of 1 Billion USD, The China Money Report

Excerpt: Two brothers and their father were sentenced to death on Monday for cheating 15,000 investors out of over $1.1 billion in east China’s Zhejiang province.

Ji Wenhua, president of the Yintai Real Estate and Investment Group, was sentenced to death for the crime of fund-raising fraud, said the Intermediate People’s Court in the city of Lishui, where the company was based.

However, his brother, Ji Shengjun, and father, Ji Linqing, could be spared execution as their death penalties have a two-year reprieve.

The family, along with others, had illegally raised over 7.04 billion yuan ($1.12 billion) between 2003 and 2008 before they were taken into police custody in 2008, holding the truth from investors that their company had been losing money for years, according to the court.

A third brother, Ji Yongjun, was sentenced to life imprisonment.

5--Goldman Is the New Master of the EU?, The Big Picture

Excerpt: The Independent writes:

“This is The Goldman Sachs Project. Put simply, it is to hug governments close. Every business wants to advance its interests with the regulators that can stymie them and the politicians who can give them a tax break, but this is no mere lobbying effort. Goldman is there to provide advice for governments and to provide financing, to send its people into public service and to dangle lucrative jobs in front of people coming out of government. The Project is to create such a deep exchange of people and ideas and money that it is impossible to tell the difference between the public interest and the Goldman Sachs interest.” (See chart--Goldman has its people everywhere in Europe)

6--Report: Not so Super committee to admit defeat as soon as Monday, Calculated Risk

Excerpt: from the Wa Post:

The congressional committee tasked with reducing the federal deficit is poised to admit defeat as soon as Monday ...

... many economists consider particularly urgent the need to extend jobless benefits and the one-year payroll tax cut. ... the payroll tax cut, enacted last December, allows most American workers to keep an additional 2 percent of their earnings, a boon to tight household budgets as well as the economic recovery. Economists at J.P. Morgan Chase recently estimated that if Congress does not extend the two measures, economic growth next year could take a hit of as much as two percentage points — enough to revive fears of a recession.

Just about everyone expected the committee to fail. The key is how much fiscal tightening happens next year - as I've noted before, the two most significant downside risks to the U.S. economy in 2012 are the European financial crisis and more fiscal tightening.

As Goldman Sachs economist noted on November 11th, the impact from not extending the payroll tax cut would be significant: "Our forecast assumes that the payroll tax cut is extended for another year; if that failed to happen, the fiscal drag in early 2012 would rise significantly." And their forecast for Q1 2012 is for 0.5% GDP growth.

7--The austerity train wreck, Robert Reich

Excerpt: The real question is how to stop this austerity train wreck, and substitute the following:

FIRST: no cuts before jobs are back – until unemployment is down to 5 percent. Until then, the economy needs a boost, not a cut. Consumers – whose spending is 70 percent of the economy – don’t have the money to boost the economy on their own. Their pay is dropping and they’re losing jobs.

SECOND: Make the boost big enough. 14 million Americans are out of work, and 10 million are working part time who need full-time jobs. The President’s proposed jobs program is a start but it’s tiny relative to what needs to be done. It would create fewer than 2 million jobs. We need a big jobs program – rebuilding America’s crumbling infrastructure, and including a WPA and Civilian Conservation Corps.

THIRD: To pay for this, raise taxes on the super-rich. It’s only fair. Never before has so much income and wealth been concentrated at the very top, and taxes on the top so low. Go back to the 70 percent marginal tax we had before 1980. And include more tax brackets at the top. It doesn’t make sense that any income over $375,000 is taxed at the same 35 percent

even if it’s a billion dollars. And tax all sources of income at the same rate, including capital gains.

FOURTH: Cut the budget where the real bloat is. Military spending and corporate welfare. End weapons systems that don’t work and stop wars we shouldn’t be fighting to begin with, and we save over $300 billion a year. Cut corporate welfare – subsidies and special tax breaks going to big agribusiness, big oil, big pharma, and big insurance – and we save another $100 billion.

8--Blooey, Paul Krugman, NY Times

Excerpt: Today’s NY Times:

Nervous investors around the globe are accelerating their exit from the debt of European governments and banks, increasing the risk of a credit squeeze that could set off a downward spiral.



Experts say the cycle of anxiety, forced selling and surging borrowing costs is reminiscent of the months before the collapse of Lehman Brothers in 2008, when worries about subprime mortgages in the United States metastasized into a global market crisis.

Also:

The eurozone infection this week moved decisively from the periphery of the continent to its core.

Many investors are no longer just fretting about the possibility of a default here or there. They are now starting to worry about the chances of the euro itself breaking up. Bond markets may be putting as high a probability as 25 per cent on a split, according to Citi analysts.

And what is the new president of the ECB doing? Lecturing people on the need for discipline.

By the way, some commenters have been accusing me of crying wolf, because I’ve been warning about Eurogeddon for several weeks and the euro hasn’t collapsed yet. Geez. Eurozone capital markets have basically frozen; nobody is buying debt either of many governments or of many banks. This doesn’t bring the roof down overnight, but it will if this goes on for months.

9--Child poverty charts of the day, Reuters

Excerpt: This is a huge increase: between 2008 and 2010, the number of children in poverty increased by 3.2 percentage points, from 18.4% to 21.6%. Which means the number of children in poverty increased by more than 17%, to 15.7 million.

It’s worth mentioning that these are apples-to-apples comparisons using the old poverty figures rather than the new ones, and the new poverty figures show a lower child poverty rate. Under the Supplemental Poverty Measure, the number of children in poverty is “only” 13.6 million. But I’m reasonably sure that if and when that measure gets calculated for 2008 and 2009, it’ll show a rate of increase just as high as we’re seeing in the old one. And I doubt the distribution across the country would be any different, either...

Does anybody, this election season, have a plan for reducing the rate of child poverty, especially in the south? In ten different states, including Texas, one child in every four is born into poverty. This is obviously unacceptable — but it’s equally obviously being swept beneath the political carpet. (see charts)

10--The Complete And Annotated Guide To The European Bank Run, zero hedge

Excerpt: ....here is Goldman Sachs ...explanation for why we should all panic....

(from GS report)--Core’ banks cut GIIPS debt by €42 bn (-31%) in 3Q; a manifestation of PSI side-effects?

Funding: Increasingly reliant on the ECB

The use of ECB facilities rose again in October, driven by Spanish (€7 bn) and Italian (€6 bn) banks. For 4Q, we expect a sharp increase in use by Italian banks, driven by: (1) LCH’s increased margin requirements on Italian REPOs, which now make market REPOs comparatively more expensive than those at the ECB; and (2) a steady fading of the ECB funding ‘stigma’. It is possible that the majority of the €300 bn of interbank funding and market REPOs could end up on ECB’s balance sheet. That alone would have the capacity to lift current ECB use from €579 bn to just below €900 bn. This level of use would compare with previous crisis peak levels (2009) of €870-897 bn.

We have long argued that the ECB has capacity to back-stop bank funding requirements – and there is no change to this view. That said, a gradual closing of the last functioning wholesale funding market – short-term REPOs, backed by government bonds – is certainly not an encouraging sign. The re-opening of the long-term funding markets has been pushed further out, in our view....

It is possible that the majority of the €300 bn of interbank funding and market REPOs could end up on the ECB’s balance sheet. That alone would have the capacity to lift current ECB use from €579 bn to just below €900 bn. This level of use would compare with previous crisis peak levels (2009) of €870-897 bn....

So just why again is it that anyone accuses the ECB of doing nothing? When all is said and done under the current regime, the ECB balance sheet will be just under €2 trillion, and that is without any incremental printing, courtesy of the farce that is "sterilization" with banks which exist only due to the ECB, thereby making said sterilization about the most idiotic thing ever conceived. Yet that is what spin is for...

In the meantime, the European shadow banking system is on the verge of a complete shutdown, with repos of all shapes and sizes about go dark....

To summarize: everyone is dumping European paper, except for the ECB and Italian banks, which have no choice and instead have to double down and buy more. In the meantime, the market is going increasingly bidless as liquidity evaporates, confidence has disappeared and virtually everyone now expects a repeat of Lehman brothers. Of course, this means that when the bottom finally out from the market, the implosion of the Italian banking system, and thus economy, will be instantaneous. And when Italy goes, so goes its $2 trillion+ in sovereign debt, and at that point we will see just how effectively hedged and offloaded the rest of the world is, as contagion shifts from Italy and slowly but surely engulfs the entire world.

Incidentally, is it really that surprising that Goldman is now doing its best to precipitate a bank run of Europe's major financial institutions by "suddenly" exposing the truth that was there all along? During the great financial crisis of 2008, the one biggest winner from the collapse of Bear and Lehman was none other than the squid. This time around, Goldman has set its sights on Europe and has already made sure that its tentacles will be in firmly in control at all the right places when the collapse comes, as the Independent shows.

11--Europe Fears a Credit Squeeze as Investors Sell Bond Holdings, NY Times

Excerpt: Nervous investors around the globe are accelerating their exit from the debt of European governments and banks, increasing the risk of a credit squeeze that could set off a downward spiral.

Financial institutions are dumping their vast holdings of European government debt and spurning new bond issues by countries like Spain and Italy. And many have decided not to renew short-term loans to European banks, which are needed to finance day-to-day operations.

If this trend continues, it risks creating a vicious cycle of rising borrowing costs, deeper spending cuts and slowing growth, which is hard to get out of, especially as some European banks are having trouble meeting their financing needs. ...

At the same time, American institutions are pulling back on loans to even the sturdiest banks in Europe. When a $300 million certificate of deposit held by Vanguard’s $114 billion Prime Money Market Fund from Rabobank in the Netherlands came due on Nov. 9, Vanguard decided to let the loan expire and move the money out of Europe. Rabobank enjoys a AAA-credit rating and is considered one of the strongest banks in the world....

Experts say the cycle of anxiety, forced selling and surging borrowing costs is reminiscent of the months before the collapse of Lehman Brothers in 2008, when worries about subprime mortgages in the United States metastasized into a global market crisis....

American banks have become skittish about lending to European institutions over similar concerns. Of the biggest banks that lend to Europe, about two-thirds have pulled back on lending to their European counterparts, according to the most recent survey of loan officers by the Federal Reserve.

American money market funds, long a key supplier of dollars to European banks through short-term loans, have also become nervous. Fund managers have cut their holdings of notes issued by euro zone banks by $261 billion from around its peak in May, a 54 percent drop, according to JPMorgan Chase research....

With borrowing costs ticking higher, more institutions have started selling their sovereign debt, creating a frenzy that forces bond prices to plunge and yields to rise at dizzying speeds, which begets even more selling. In the case of Italy, the yield on 10-year bonds spiked to current levels in a month, a huge move by government bond market standards.

The dynamic of falling bond prices also undermines the capital position of the banks, since they are among the biggest holders of government bonds in many countries. As those assets plunge in value, banks cut back on lending and hoard capital, increasing the likelihood of a recession.

12--The cop group coordinating the Occupy crackdowns, SFBG

Excerpt: The White House says there’s no federal oversight. Speaking November 15 aboard Air Force One, White House Press Secretary Jay Carney said “The president’s position is that obviously every municipality has to make its own decisions about how to handle these issues.”

But a little-known but influential private membership based organization has placed itself at the center of advising and coordinating the crackdown on the encampments. The Police Executive Research Forum, an international non-governmental organization with ties to law enforcement and the U.S. Department of Homeland Security, has been coordinating conference calls with major metropolitan mayors and police chiefs to advise them on policing matters and discuss response to the Occupy movement. The group has distributed a recently published guide on policing political events.

Speaking to Democracy Now! On November 17, PERF Executive Director Chuck Wexler acknowledged PERF's coordination of a series of conference-call strategy sessions with big-city police chiefs. These calls were distinct from the widely reported national conference calls of major metropolitan mayors.

The coordination of political crackdowns on the Occupy movement has been conducted behind closed doors, with city officials and PERF refusing to say how many cities participated in the conference calls and the exact nature of the discussions. Reports of at least a dozen cities and some indication of as many as 40 accepting PERF advice and/or strategic documents include San Francisco, Seattle, New York, Portland, Oakland, Atlanta, and Washington DC....

PERF coordinated a November 10 conference call with city police chiefs across the country – and many of these cities undertook crackdowns shortly afterward.

"We know that there were influential conference calls of private groups that include police chiefs who played key roles in repressing the anti-globalization movement, in order to stage rolling attacks on occupations across the country,” said Baruca Peller, an organizer for Occupy Oakland. “In less than a week an unprecedented number of protesters have been brutalized and arrested, and in many cities such as Oakland these evictions were pushed for by the local one-percent.”...

PERF’s current and former directors read as a who's who of police chiefs involved in crackdowns on anti-globalization and political convention protesters resulting in thousands of arrests, hundreds of injuries, and millions of dollars paid out in police brutality and wrongful arrest lawsuits.

These current and former U.S. police chiefs -- along with top ranking police union officials and representatives from Canadian and British police -- have been marketing to municipal police forces and politicians their joint experiences as specialists on policing mass demonstrations.

Chairing PERF's board of directors is Philadelphia Police Commissioner and former Washington D.C. Metro Police Chief Charles Ramsey, who was responsible for coordinating the police response to protests against international banking institutions including the World Bank and International Monetary Fund. Those protests, and Ramsey's response to massive anti-war demonstrations in Washington DC in the lead up the the Iraq War, often resulted in preemptive mass arrest of participants that were later deemed to be unconstitutional.

Ramsey's predecessor as organization chair is former Philadelphia Police Commissioner and former Miami Police Chief John Timoney, who is responsible for the so called “Miami Model,” coined after the police crackdown on the 2003 Free Trade Agreement of the Americas protest.

The police response to protesters in Miami lead to hundreds of injuries to protesters. The ACLU won multiple suits against the Miami P.D. over abuse to protesters and free speech concerns.

Prior to the 2003 protest, Timoney was quoted as saying that the FTAA was “the first big event for homeland security … the first real realistic run-through to see how it would work.”...

As the occupation movement grew, PERF began circulating a publication titled Managing Major Events: Best Practices from the Field. The manual – a copy of which we downloaded -- amounts to a how-to guide for policing political events, and gives special attention to policing “Anarchists” and “Eco Terrrorists” at political events.

The guide encourages the use of undercover officers and snatch squads to “grab the bad guys and remove them from the crowd.” It urges local law enforcement to use social media to map the Occupy movement.

An earlier PERF guide Police Management of Mass Demonstrations advocates the use of embedded media to control police messages, the use of undercover cops to infiltrate protest groups, the use and pitfalls of preemptive mass arrest, an examination of the use of less-than-lethal crowd control weapons, and general discussion weighing the use of force in crowd control.

 

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