Wednesday, January 2, 2013

Today's links

1---The Descent of a Nation, Ralph Nader, counterpunch

Theodore Roosevelt in an August 1912 speech declared that “Behind the ostensible government sits enthroned an invisible government owing no allegiance and acknowledging no responsibility to the people. To destroy this invisible government, to befoul the unholy alliance between corrupt business and corrupt politics is the first task of the statesmanship of the day.”

While Wilson repeatedly said that the country’s “salvation required the dissolution of the evil partnership between the government and the trusts.”

Apart from how deeply these candidates believed in what they said, they repeated their campaign pledges again and again because the people were rising and breathing down their necks with demands.

Fast forward to 2012 to the far greater grip of big business on government and elections. So much so that both major parties offer no solution to the “too big to fail” perch of the giant banks and additional corporate behemoths, other than to continue bailing them out with taxpayer dollars and under-regulating them to boot.

Entrepreneur, lawyer, shareholder advocate, and author, Robert A. Monks wrote recently that “American corporations today enjoy an absolute reign. They and they alone have the power to control the rules under which they function. Corporations, and the most powerful CEOs acting through them, have effectively seized authority over the United States without assuming any of the responsibilities of dominion.”

2---Will MLS for-sale inventory return in 2013?, oc housing

2012 is known as the year without a seller. Due to a dramatic change in foreclosure policy, festering delinquencies at the major banks, more than a quarter of all mortgage holders underwater, and hedge funds intercepting MLS inventory at the auction sites and renting them out instead, sellers did not bring properties to the market in 2012. This wasn’t a small phenomenon. Across most of the US, there were a third as many houses for sale this year as there were two years ago. In California, the reduction in for-sale inventory was even more extreme. Orange County ended the year with 63.6% fewer listings than the year before.

3---Obama's tax threshold concession bodes ill for debt ceiling talks, Dean Baker, Guardian

This is a president who encouraged members of Congress to vote for the Troubled Asset Relief Program (Tarp) in 2008 with a promise that he would put bankruptcy cramdown for mortgage debt (allowing restructuring of housing loans for people with distressed mortgages) at the top of his agenda once he took office. This is a president whose top aids boasted about "hippie punching" when they ditched the public option in the Affordable Care Act. This is a president who has explicitly put cuts to social security on the agenda, while keeping taxes on Wall Street speculation off the agenda.

And this is a president who decided to put deficit reduction, rather than job creation, at the center of the national agenda – even though he knows the large deficits are entirely the result of the collapse of the economy. And, of course, he is the president who appointed former Senator Alan Simpson and Morgan Stanley director Erskine Bowles to head his deficit commission, enormously elevating the stature of these two foes of social security and Medicare.

Given his track record, there is little doubt that President Obama can be trusted to make further concessions, possibly involving social security and Medicare, in negotiations on the debt ceiling.

4---Bond Craze Could Run Its Course in New Year, NYT

Americans sold off their stock mutual funds, the most popular way to invest in American companies, at the fastest clip since 2008, the year the financial crisis began. That occurred despite the fact that the stock market itself rose steadily; the benchmark Standard & Poor’s 500-stock index ended the year up 13.4 percent.
Investors have been opting instead for the assumed safety of bonds. Money has been steadily flowing into mutual funds holding bonds of all sorts for the last four years, but the pace accelerated this year. The percentage of household investments in bonds shot up to 26 percent from 14 percent just five years ago, according to Morningstar.
Entering the new year, a growing number of professional investors are betting that the craze for bonds has gone too far, perhaps dangerously so, as has been evident in the headlines from the year-end reports from large investment firms. “Bond PAIN in 2013?” Wells Capital Management’s chief strategist asked. “Caution: Turn Ahead,” BlackRock analysts wrote. “The inflection year,” said Bank of America. ...
The preference for bonds has already been costly for retail investors. Over the last year, most types of American bonds have returned less than an investment in the S.& P. 500. When inflation is factored in, the benchmark 10-year Treasury security is delivering negative returns.
But many investors are still rattled by the 2008 financial crisis and the turbulence in the stock markets since then, which have led to wild swings. Over the last five years, all major types of American bonds have done better than leading stock indexes.
The Federal Reserve has been engaged in an aggressive effort to buy bonds and drive down interest rates. The long term goal of that program is to encourage banks to lend money and to drive investors out of bonds. But in the meantime, falling interest rates have made bonds more attractive. The Fed has said it wants to keep rates low until 2015, though it could let them rise sooner if the economy picks up faster than expected. The 10-year Treasury hovered near 4 percent in recent years but has stayed below 2 percent for much of 2012.
Most of the predictions that interest rates will stabilize or turn around are based on the belief that an improving American economy will help push unemployment lower, restore confidence in American companies and encourage inflation to start to rise. If inflation does go up, it will make current bond holdings less attractive
As the excellent data from Sentier Research makes clear, the mainstream U.S. household was struggling before the Great Recession. At this point, real household incomes are in significantly worse shape than they were over three years ago when the recession ended.
The data also shows an increase in auto loans during the first three quarters of 2012 on the order of $24bn in ABS securitization alone.

Even if the exact amount is difficult to estimate at this stage, it is clear from the above three measures that the US experienced a decent size expansion in auto loans during 2012 (although it is still a fraction of corporate lending taking place last year). And that credit expansion in turn helped drive brisk auto sales that exceeded the Cash For Clunkers program in 2009.
With much of the public disaffected, large businesses can take specific steps to show the virtues of the marketplace.
One of the alarming effects of the global financial crisis has been the widespread erosion of confidence in capitalism itself. Doubt has grown that capitalist societies offer everyone as much chance of success as risk of failure. Better government policies might help accelerate economic recovery, but only business itself can restore faith in capitalism.

The need is acute, because the general public's sense of disenfranchisement goes well beyond the Occupy Wall Street movement or protesters on the streets of Athens and Madrid. A recent poll by the Public Religion Research Institute found that 70% of white working-class Americans, 78% of blacks and 69% of Hispanics believe that the U.S. economic system "unfairly favors the wealthy." And according to the latest Pew Research Center Global Attitudes Project survey, support for capitalism since the 2007-08 financial crisis is down in nine of the 16 countries surveyed, and in none—not even in thriving China or Brazil—has support risen

9---Capitalism Less Appealing, Pew Research

Faith in capitalism is another victim of the Great Recession. In just 13 of the 21 nations surveyed, half or more agree with the statement that people are better off in a free market economy even though some people are rich and some are poor....

Support for capitalism is greatest in Brazil (75%), China (74%), Germany (69%) (although East Germans are less supportive than West Germans) and the U.S. (67%). The biggest skeptics of the free market can be found in Mexico (34%) and Japan (38%).

But in nine of the 16 countries for which there is trend data since 2007, before the financial crisis began, support for capitalism is down, with the greatest declines in Italy (down 23 percentage points) and Spain (down 20 points).

10---Support for Capitalism, Pew

Belief that people are better off in a free market, even if some are rich and some are poor, is a casualty of the Great Recession. Faith in capitalism has fallen since 2007, especially in Europe and Muslim majority countries.

11---How Colombian drug traffickers used HSBC to launder money, Reuters

a review of confidential investigative records that originate from two U.S. Attorney office probes and federal court filings in New York and California, as well as interviews with senior law-enforcement officials, shows how investigators tracing the activities of people who allegedly worked with Chaparro were able to expose large-scale money laundering at one of the world's biggest banks....

Drug cartels sold narcotics in the United States and routed the cash to Mexico, often using couriers to smuggle it across the border. That cash would then be put into bank accounts at HSBC's Mexico unit, where large deposits could be made without arousing suspicion, according to U.S. Department of Justice documents.
In one filing, U.S. prosecutors said, Chaparro and others allegedly utilized accounts at HSBC Mexico to deposit "drug dollars and then wire those funds to ... businesses located in the United States and elsewhere. The funds were then used to purchase consumer goods, which were exported to South America and resold to generate ‘clean' cash."
In a typical transaction, a middleman in a drug cartel would offer to deliver consumer goods, such as computers or washing machines, to Colombian businesses on favorable terms. Another person in the United States would buy the goods from firms using funds from drug trafficking, and fulfill those orders.
Money launderers exploited the laxness of HSBC in policing shadowy money flows, the Department of Justice said earlier this month. Failures included not conducting due diligence on customers, not adequately monitoring wire transfers or cash shipments and not having enough employees to run anti-money laundering systems. U.S. Assistant Attorney General Lanny Breuer called the lapses "stunning failures of oversight."
The situation was so bad, according to the Department of Justice, that in 2008, the head of HSBC's Mexican operations was told by Mexican regulators that a local drug lord described the bank as "the place to launder money.".....

Federal agents would ultimately home in on $500 million that had moved from HSBC Mexico to HSBC's operations in the United States, according to the confidential investigative records.

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