December 2010 archive

“Punting the Pundits” is an Open Thread. It is a selection of editorials and opinions from around the news medium and the internet blogs. The intent is to provide a forum for your reactions and opinions, not just to the opinions presented, but to what ever you find important.

Thanks to ek hornbeck, click on the link and you can access all the past “Punting the Pundits”.

Mikhail Gorbachev: The Senate’s Next Task: Ratifying the Nuclear Test Ban Treaty

JUST a few weeks ago, the fate of the New Start nuclear arms treaty seemed to hang by a thread. But since last week, when the United States Senate ratified the treaty, which reduces the size of the American and Russian nuclear stockpiles, we can speak of a serious step forward for both countries. I hope this will energize efforts to take the next step to a world free of nuclear weapons: a ban on all nuclear testing.

In the final stretch, President Obama put his credibility and political capital on the line to achieve ratification. That a sufficient number of Republican senators put the interests of their nation’s security, and the world’s, above party politics is encouraging.

The success was not without cost. In return for the treaty’s ratification, Mr. Obama promised to allocate tens of billions of dollars in the next few years for modernizing the American nuclear weapons arsenal, which is hardly compatible with a nuclear-free world.

William Hartung: New START, Next Steps

The Senate’s 71-26 vote to ratify the New START agreement was a victory for the Obama administration, key members of Congress, the arms control and disarmament movement, and ultimately, all of us, as it makes the world a safer place. . . . .

But that was then and this is now. The battle to define the meaning of New START’s ratification has already begun. For Robert Kagan, writing in the Washington Post, the treaty is “good news” and a pillar of a “sound American foreign and defense policy.” But his idea of a sound policy includes escalation in Afghanistan, a tougher line on China, and an “adequate” (which for him means larger) defense budget. This is what he wants the coalition that came together to ratify New START to work towards next. More directly, he wants more money for missile defense — he derides Republicans for using missile defense as a “talking point” and asks whether “the next, more Republican Congress will put its money where its mouth is” by pressing for more missile defense funding.

Charles Krauthammer is on the case as well. While acknowledging that New START — along with his tax deal and the repeal of “Don’t Ask, Don’t Tell” — marks a political victory for President Obama, he’s still fixated on missile defense. He criticizes New START and the surrounding debate for its “gratuitous reestablishment of the link between offensive and defensive weaponry.”

Unni Karunakara: Haiti: where aid failed

Why have at least 2,500 people died of cholera when there are about 12,000 NGOs in the country?

Haiti should be an unlikely backdrop for the latest failure of the humanitarian relief system. The country is small and accessible and, following last January’s earthquake, it hosts one of the largest and best-funded international aid deployments in the world. An estimated 12,000 non-governmental organisations are there. Why then, have at least 2,500 people died of cholera, a disease that’s easily treated and controlled?

I recently went to Haiti’s capital, Port-au-Prince, and found my Médecins Sans Frontières (MSF) colleagues overwhelmed, having already treated more than 75,000 cholera cases. We and a brigade of Cuban doctors were doing our best to treat hundreds of patients every day, but few other agencies seemed to be implementing critical cholera control measures, such as chlorinated water distribution and waste management. In the 11 months since the quake, little has been done to improve sanitation across the country, allowing cholera to spread at a dizzying pace.

Ten days after the outbreak hit Port-au-Prince, our teams realised the inhabitants of Cité Soleil still had no access to chlorinated drinking water, even though aid agencies under the UN water-and-sanitation cluster had accepted funds to ensure such access. We began chlorinating the water ourselves. There is still just one operational waste management site in Port-au-Prince, a city of three million people.

Unni Karunakara is the president of the International Council of Médecins Sans Frontières

Sometimes it seems to me that all I write about is Economics, but I do have other interests.  Alas, pitchers and catchers don’t report until February 13th and no Formula One until March 11th.

But there are other things happening that we shouldn’t forget, indeed that’s one of the things the Versailles Villagers count on is our having a short attention span.  Fortunately the Tubz are here to remind us of the dim distant past, say April 20th, 2010.

Taint Part 1.

Panel challenges Gulf seafood safety all-clear

‘It is unethical to experiment with the health of the U.S. population or military members,’ toxicologist says

By Kari Huus, MSNBC

12/27/2010 6:04:49 AM ET

Citing what the law firm calls a state-of-the-art laboratory analysis, toxicologists, chemists and marine biologists retained by the firm of environmental attorney Stuart Smith contend that the government seafood testing program, which has focused on ensuring the seafood was free of the cancer-causing components of crude oil, has overlooked other harmful elements. And they say that their own testing – examining fewer samples but more comprehensively – shows high levels of hydrocarbons from the BP spill that are associated with liver damage.

…

“What we have found is that FDA simply overlooked an important aspect of safety in their protocol,” contends William Sawyer, a Florida-based toxicologist on Smith’s team. “We now have a sufficient number of samples to provide FDA with probable cause to include such testing, really. They need to go back and test some of their archived samples as well.”

…

Their approach draws on the work of scientists from industry, government and academia who banded together in the 1990s to develop guidelines for public health officials and environmental engineers faced with petroleum-related exposure and contamination. The work of the U.S.-funded Total Petroleum Hydrocarbon Criteria Working Group was part of a flurry of research that occurred in the wake of the Exxon Valdez spill in Alaska.

…

“What gives us confidence that we are finding oil in these samples is that we are using multiple lines of evidence,” he said. “We are finding – even in metabolized samples – a lot of matches to BP oil.”

Sawyer and Kaltofen began finding high levels of TPH in seawater and sediment in June. Many scientists had previously expressed concerns that the heavy use of chemical dispersants by BP to break up giant oil slicks would lock the contaminants in the water column, making them more available to marine life.

“From there you can reasonably predict that there are going to be more and more findings in the food chain,” said Susan Shaw, a marine toxicologist at the Marine Environmental Research Institute. Shaw, who is not a member of Smith’s scientific team, is one of 14 scientists tapped for the independent DOI Strategic Sciences Working Group to dissect the oil spill consequences and make policy recommendations to the agencies. She has been a vocal opponent of the heavy use of dispersants throughout the response.

“What we’re seeing now is plausible evidence from independent labs that – just as we thought – there’s oil in the food web, and here’s where we’re finding it,” said Shaw.

…

“We are taking this situation seriously,” said Roy Crabtree, assistant NOAA administrator for NOAA’s Fisheries Service southeast region. “Our primary concerns are public safety and ensuring the integrity of the gulf’s seafood supply.”

Bullshit.

The New York Times recently published a lengthy piece on the final hours of the BP Deepwater Blowout Disaster, which the whiney Galtian Gatekeepers at Associated Press claim is not a scoop though they don’t dispute it’s original reporting.

Who cares you crybabies?

Deepwater Horizon’s Final Hours

By DAVID BARSTOW, DAVID ROHDE and STEPHANIE SAUL, The New York Times

Published: December 25, 2010

It has been eight months since the Macondo well erupted below the Deepwater Horizon, creating one of the worst environmental catastrophes in United States history. With government inquiries under way and billions of dollars in environmental fines at stake, most of the attention has focused on what caused the blowout. Investigators have dissected BP’s well design and Halliburton’s cementing work, uncovering problem after problem.

…

What emerges is a stark and singular fact: crew members died and suffered terrible injuries because every one of the Horizon’s defenses failed on April 20. Some were deployed but did not work. Some were activated too late, after they had almost certainly been damaged by fire or explosions. Some were never deployed at all.

…

The paralysis had two main sources, the examination by The Times shows. The first was a failure to train for the worst. The Horizon was like a Gulf Coast town that regularly rehearsed for Category 1 hurricanes but never contemplated the hundred-year storm. The crew members, though expert in responding to the usual range of well problems, were unprepared for a major blowout followed by explosions, fires and a total loss of power.

They were also frozen by the sheer complexity of the Horizon’s defenses, and by the policies that explained when they were to be deployed.

Finally, I mentioned earlier that Shareholder Democracy is a joke.  The only way to assert your Contract Rights as a Shareholder is to sue-

New York, Ohio Pensions to Lead Plaintiffs in BP Investor Case Over Spill

By Laurel Brubaker Calkins and Margaret Cronin Fisk, Bloomberg News

Dec 29, 2010 12:01 AM ET

U.S. District Judge Keith P. Ellison in Houston named New York State Comptroller Thomas DiNapoli and Ohio State Attorney General Richard Cordray, who head their states’ public employee pension funds, as lead plaintiffs for investors who bought either BP common stock or American depositary receipts from June 2005 to June 2010.

Ellison also named four individual investors as lead plaintiffs for a smaller class of investors who bought common shares of London-based BP or ADRs from March 2009 to April 20 of this year, the date the Deepwater Horizon rig exploded, sparking the worst offshore oil spill in U.S. history.

While the sub-class of investors claim that BP’s leadership made misleading statements about drilling safety in the Gulf of Mexico in the months before the rig explosion, the state pension funds “argue more generally that BP made fraudulent statements between 2005 and 2010 about its safety precautions in the Gulf of Mexico and elsewhere,” Ellison said in yesterday’s order.

The New York and Ohio funds also claim substantial losses from BP ADRs purchased several weeks after the Deepwater Horizon explosion, a timeframe not covered by the complaint of the smaller group of investors, Ellison said. For six weeks after the blast, the funds claim “BP intentionally understated the oil flow rate in an attempt” to diminish harm to the company, lawyers for one of the institutional funds said in court papers.

Good, because you’re arrogant, greedy, narcissistic, assholes who broke the law and should be in jail.  Grow up you crybaby Galts.

Obama & Wall St.: Still Venus & Mars

By: Ben White, Politico

December 28, 2010 04:33 AM EST

(P)olls suggest most Americans believe Obama has handled the titans of Wall Street with an exceedingly light touch. He supported the deeply unpopular $700-billion bank bailout, pushed a financial reform package that stopped short of breaking up the biggest behemoths and, just this month, signed off on tax cuts for the wealthiest and continued low rates on capital gains and dividends.

And, of course, big-time bonuses at bailed-out banks are back, even as average Americans continue to get tossed out of their homes, corporate America has turned in its most profitable quarter in history and the stock market is at a two-year high.

…

Their complaints fell along similar lines: Obama and the White House don’t understand how capital markets work, don’t like people who make a lot of money and relish using Wall Street as a whipping boy to score points with the left.

…

“You would really have to go back to 1934 to find a time when Wall Street was this angry at an administration following a crisis that was largely of Wall Street’s own making,” said Charles Geisst, a financial historian and professor at Manhattan College. “Back then, Wall Street basically went on strike and would not issue bonds for corporations. They stomped their feet like little kids. The same thing is happening now.”

But, as Geisst noted, this is not 1934. Not even close. Big banks are not getting broken up. Nothing Obama has done equates to having created the Securities and Exchange Commission.

…

(W)hat about the fact that “community organizer” Obama, a Harvard Law School graduate, rammed through an extension of all the Bush tax cuts over howls from the left and is just as much a card-carrying member of the bohemian bourgeoisie as any Wall Street banker?

…

But Geisst also suggested the shock and disdain is something of a pose, a feint to fight off greater re-regulation.

“Their best defense here has been incredulity,” he said. “Wall Street just pretends they don’t understand what all the fuss is about and can’t believe how they are being talked about and hope that their incredulity will translate into softer treatment, which is exactly what happened here.”

Out of Lehman’s Ashes Wall Street Gets Most of What It Wants

By Christine Harper, Bloomberg News

Dec 28, 2010 12:01 AM ET

The U.S. government, promising to make the system safer, buckled under many of the financial industry’s protests. Lawmakers spurned changes that would wall off deposit-taking banks from riskier trading. They declined to limit the size of lenders or ban any form of derivatives. Higher capital and liquidity requirements agreed to by regulators worldwide have been delayed for years to aid economic recovery.

“We continue to listen to the same people whose errors in judgment were central to the problem,” said John Reed, 71, a former co-chief executive officer of Citigroup Inc., who estimated only 25 percent of needed changes have been enacted. “I’m astounded because we basically dropped the world’s biggest economy because of an error in bank management.”

…

U.S. President Barack Obama was elected in 2008, weeks after Lehman Brothers Holdings Inc. collapsed in the largest bankruptcy and the Federal Reserve and government provided unprecedented support to insurance company American International Group Inc. as well as nine of the largest banks. Obama, who raised $15 million on Wall Street, promised that his administration would “crack down on the culture of greed and scheming” that he said led to the financial crisis.

While Obama vowed to change the system, he filled his economic team with people who helped create it.

….

Even when changes were advocated by people who couldn’t be characterized as radical populists, their ideas were dismissed as unrealistic, misinformed, advancing ulterior motives or damaging to U.S. competitiveness.

Such tactics helped bat back suggestions from billionaire hedge fund manager George Soros and Berkshire Hathaway Inc. Vice Chairman Charles Munger that regulators ban purchases of so-called naked credit-default swaps — contracts that allow speculators to profit if a debt issuer defaults.

…

A suggestion that banks deemed too big to fail should be broken up or made small enough to fail — an idea backed by former Federal Reserve Chairman Alan Greenspan, Bank of England Governor Mervyn King and hedge-fund manager David Einhorn — also failed to win support from U.S. policy makers, as bank executives argued that size alone didn’t make a company risky and that it could be essential for banks to compete.

…

Even before Obama took office in January 2009, former Federal Reserve Chairman Paul A. Volcker, an economic adviser to the president-elect, was calling for clear distinctions between banks that take deposits and make loans and those that engage in riskier capital markets businesses. The recommendation, a modern version of Glass-Steagall, was put forward in a report by the Group of 30, an organization of current and former central bankers, financial ministers, economists and financiers whose board Volcker chairs.

…

(I)n areas that weren’t technical, such as bonuses, the financial industry was able to resist tough regulation.

With polls showing strong popular support for limits on pay, former British Prime Minister Gordon Brown pressed for a tax on banker bonuses and one on financial transactions to deter speculative trading.

Obama didn’t go that far. Instead, the administration appointed Washington lawyer Kenneth Feinberg to review pay for the 100 top executives at firms receiving “exceptional assistance” from the Troubled Asset Relief Program. Feinberg ordered cuts at Bank of America, Citigroup and AIG, as well as at two bankrupt car companies and their finance divisions.

…

In a Bloomberg News National Poll conducted Dec. 4 through Dec. 7, 71 percent of Americans said big bonuses should be banned this year at Wall Street firms that took taxpayer bailouts, and 17 percent said bonuses above $400,000 should be subject to a one-time 50 percent tax. Only 7 percent of the respondents said they consider bonuses a reflection of Wall Street’s return to health and an appropriate incentive.

…

Reed, the former Citigroup executive, said he didn’t understand why lawmakers gave so much credit to arguments made by financial-industry participants whose job it is to put the interests of their shareholders above any concern for the safety of the financial system.

“I’m surprised that the people in Washington think that the stockholders are the people that they should protect,” Reed said. “It would seem to me that the people who should be protected are the overall banking system and the many, many, many companies that depend on it.”

And the fact of the matter is that their fraudulent criminal practices DON’T benefit the shareholders whose concerns are routinely ignored and overidden by Boards of Directors composed entirely of cronies of Management.  Shareholder Democracy is a joke.

These thieves don’t care about anyone but themselves.

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

December 29 is the 363rd day of the year (364th in leap years) in the Gregorian calendar. There are two days remaining until the end of the year.

On this day in 1890, the Wounded Knee Massacre took place near Wounded Knee Creek (Lakota: Cankpe Opi Wakpala) on the Lakota Pine Ridge Indian Reservation in South Dakota.

In the years prior to the Massacre, the U.S. Government continued to coerce the Lakota into signing away more of their lands. The large bison herds, as well as other staple species of the Sioux diet, had been driven nearly to extinction. Congress failed to keep its treaty promises to feed, house, clothe and protect reservation lands from encroachment by settlers and gold miners; as well as failing to properly oversee the Indian Agents. As a result there was unrest on the reservations.

On December 28, the day before the massacre, , a detachment of the U.S. 7th Cavalry Regiment commanded by Major Samuel M. Whitside intercepted Spotted Elk’s (Big Foot) band of Miniconjou Lakota and 38 Hunkpapa Lakota near Porcupine Butte and escorted them 5 miles westward (8 km) to Wounded Knee Creek where they made camp.

The rest of the 7th Cavalry Regiment arrived led by Colonel James Forsyth and surrounded the encampment supported by four Hotchkiss guns.

On the morning of December 29, the troops went into the camp to disarm the Lakota. One version of events claims that during the process of disarming the Lakota, a deaf tribesman named Black Coyote was reluctant to give up his rifle claiming he had paid a lot for it. A scuffle over Black Coyote’s rifle escalated and a shot was fired which resulted in the 7th Cavalry opening firing indiscriminately from all sides, killing men, women, and children, as well as some of their own fellow troopers. Those few Lakota warriors who still had weapons began shooting back at the attacking troopers, who quickly suppressed the Lakota fire. The surviving Lakota fled, but U.S. cavalrymen pursued and killed many who were unarmed.

By the time it was over, at least 150 men, women, and children of the Lakota Sioux had been killed and 51 wounded (4 men, 47 women and children, some of whom died later); some estimates placed the number of dead at 300. Twenty-five troopers also died, and thirty-nine were wounded (6 of the wounded would also die). It is believed that many were the victims of friendly fire, as the shooting took place at close range in chaotic conditions.

More than 80 years after the massacre, beginning on February 27, 1973, Wounded Knee was the site of the Wounded Knee incident, a 71-day standoff between federal authorities and militants of the American Indian Movement.

The site has been designated a National Historic Landmark.

33rd Kennedy Center- Merle Haggard, Jerry Herman, Bill T. Jones, Paul McCartney and Oprah Winfrey.  I think I’ll pass.  Throwball- Vikings @ Eagles finally.  New Nova.  No LoDo (and there was much rejoicing).

A good night for movies.

You mean, let me understand this cause, ya know maybe it’s me, I’m a little fucked up maybe, but I’m funny how, I mean funny like I’m a clown, I amuse you? I make you laugh, I’m here to fuckin’ amuse you? What do you mean funny, funny how? How am I funny?

• ABC Family– Home Alone 2: Lost in New York, Cheaper by the Dozen
• AMC– Back to the Future, Back to the Future Part II
• Disney– Eloise at the Plaza
• Discovery– Dirty Jobs, Auction Kings (premiers)
• ESPN– College Throwball, Champs Sports Bowl: North Carolina State v. West Virginia, Insight Bowl: Iowa v. Missouri
• ESPN2– College Hoopies, Minnesota @ Wisconsin, North Carolina @ Rutgers
• ESPN Classic– #89
• FX– Jumper x 2
• Lifetime– Sixteen Candles
• National Geographic– Dog Whisperer marathon
• Oxygen– The Wedding Planner x 2
• Sci Fi– Casino Royale (Craig), Serenity
• Speed– Monster Jam (premier)
• Spike– GoodFellas
• Style– The Bridges of Madison County
• TBS– Family Guy marathon, Glory Daze (premier)
• Turner Classic– A Connecticut Yankee, Dr. Bull
• TLC– What Not to Wear x 2 (premiers)
• TNT– Four Brothers
• Toon– Tower Prep (premier)
• USA– Pirates of the Caribbean: Dead Man’s Chest, Pirates of the Caribbean: At World’s End
• Vs.– Bruins @ Lightning
• VH1– The Temptations

Come a day there won’t be room for naughty men like us to slip about at all. This job goes south, there well may not be another. So here is us, on the raggedy edge. Don’t push me, and I won’t push you. Dong le ma?

Later-

• AMC– Back to the Future Part III, Road House
• Comedy– Beerfest
• FX– The Replacement Killers
• Sci Fi– Equilibrium
• Turner Classic– Doubting Thomas, In Old Kentucky
• USA– Psych (last week’s)

Dave in repeats from 11/23.  Conan in repeats from 11/10.

Let us not, dear friends, forget our dear friends the cuttlefish… flipping glorious little sausages. Pen them up together, and they will devour each other without a second thought… Human nature, in’it? Ooor… fish nature… So yes… we could hold up here, well-provisioned and well-armed, and half of us would be dead within the month! Which seems grim to me any way you slice it! Or… ahh… as my learned colleague so naively suggests, we can release Calypso, and we can pray that she will be merciful… I rather doubt it. Can we, in fact, pretend that she is anything other than a woman scorned, like which fury Hell hath no? We cannot. Res ipsa loquitur, tabula in naufragio, we are left with but one option. I agree with, and I cannot believe the words are coming out of me mouth… Captain Swann. We must fight.

Evening Edition is an Open Thread

1 Ivory Coast’s Gbagbo faces West African ultimatum

by Christophe Koffi, AFP

58 mins ago

During an interview on CNN, Glenn Greenwald, Salon contributor and Constitutional lawyer, takes to task CNN’s Jessica Yellin and former George W. Bush Homeland Security advisor now a CNN contributor, Fran Townsend, for the misinformation about the release of classified information and the accusations that are being made about Julian Assange. Greenwald makes deeper observations regarding the exchange.

The lack of journalistic neutrality and questioning of government and political figures makes the them “indistinguishable”:

It’s not news that establishment journalists identify with, are merged into, serve as spokespeople for, the political class:  that’s what makes them establishment journalists.

Fran Townsend was everything you would expect from a former Bush apologist and Jessica Yellin may well have been a government plant. Neither was a match for Greenwald.

The transcript is now available thank to an ambitious blogger, hotdog, at FDL

Bill Black-

Black: the dominance of unethical banking

Posted by: Jay Kernis – Senior Producer, Parker/Spitzer

December 20th, 2010, 06:17 PM ET

A credit ratings firm couldn’t give a “AAA” rating (the highest possible – the rating that virtually all these toxic derivatives were given) if it looked at a sample of the loans – so they religiously did not kick the tires on the liar’s loans. So we had the farce of “credit rating” agencies whose expertise was supposedly in reviewing credit quality never looking at that credit quality so that they could make enormous fees by giving toxic waste pristine “AAA” ratings.

The investment banks couldn’t sell the financial derivatives loans to others if the investment bankers (whose supposed expertise was evaluating credit risk) were to actually look at credit quality of the underlying liar’s loans. If they looked, they’d document that the loans were overwhelmingly fraudulent. They’d then have three options.

A. They could sell the CDOs to others by calling them wonderful “AAA” investments – while having files proving that they knew this was a lie. This option is the prosecutor’s dream.

B. They could have sued the lenders that sold them the fraudulent liar’s loans. The investment banks typically had a clear contractual right to force the fraudulent loans to buy back the liar’s loans. But there were fatal problems with that option. The lenders that made liar’s loans typically had minimal capital (net worth). If the investment banks had demanded that they repurchase the loans they would have been unable to do so – and the demand would have exposed the investment banks’ bright shining lie that by pooling liar’s loans they could create “AAA” CDOs. Every CDO purchaser from the investment banks would then demand that the investment banks repurchased their CDOs – which would have caused virtually every large U.S. investment bank to fail.

C. They could have gone to the Justice Department and expose the massive fraud that was destroying the American economy and help the FBI investigate the lenders specializing in making liar’s loans, the corrupt appraisers, and the credit rating agencies. But that would have caused the CDO bubble to burst and the investment banks to fail.

That’s why the industry went with the fourth option – “don’t ask; don’t tell.” It’s like the famous fable of the emperor and the fraudulent designer. The designer tells everyone that he has created clothes for the emperor of such beauty that only the most sophisticated people can even see the clothes. The emperor and his cronies all agree that the clothes are glorious. The fraud only collapses when a boy blurts out: “the emperor is naked.” As long as no one engaged in the frauds pointed out that you can’t make a “AAA” rating out of a pool of massively overvalued fraudulent loans the housing bubble could hyper-inflate and the officers of the investment banks and credit rating agencies could become wealthy beyond their dreams.

…

The federal government has permitted banks to inflate their reported incomes and “net worth” for the purpose of evading the mandatory statutory duty under the Prompt Corrective Action (PCA) law to close deeply insolvent banks. Congress, at the behest of the Chamber of Commerce, the banking trade associations, and Chairman Bernanke, successfully extorted the Financial Accounting Standards Board (FASB) to scam the accounting rules so that the banks could fail to recognize on their accounting reports over a trillion dollars in losses.

When banks understate their losses massively they, by definition, overstate their net worth massively. The PCA’s provisions kick in when net worth falls, so the accounting lies have gutted the PCA. The accounting lies also allow the banks to (once again) report high fictional income when they are experiencing large, real losses. This accounting scam allows the bank executives to collect hundreds of billions of dollars in bonuses. We should end the accounting scam and enforce the PCA.

Congress Threatens to Sow the Seeds of Our Next Banking Crisis

William K. Black, Huffington Post

December 20, 2010 09:29 AM

Representative Paul’s claims epitomize the triumph of ideology over fact: “The market is a great regulator, and we’ve lost understanding and confidence that the market is probably a much stricter regulator.” No, the “market” is not a “great regulator” and the ongoing crisis is only the latest example of that point. Efficient, non-fraudulent markets would be a very good thing. Inefficient, markets with fraudulent participants can be a catastrophically bad thing.

The “market” also does not deal effectively with externalities (and they can be lethal) and with market power. The neoclassical claim that cartels cannot persist and that potential entry solves prevents all serious ills proved false in the real world. Here, however, I will discuss only why control fraud turns “markets” perverse. Accounting control frauds are guaranteed to report high profits in the early years. This is why Akerlof & Romer (1993) agreed with white-collar criminologists that such frauds were a “sure thing.” I’ve explained why the four-part recipe for optimizing fictional accounting income maximizes executive bonuses — and real losses. In the interest of brevity I will merely mention four ways in which accounting control frauds make markets, and “private market discipline” perverse.

1. The fictional profits fool creditors and shareholders — they are eager to lend to and invest in firms reporting record profits. Rather than discipline accounting control frauds, creditors and shareholders fund their massive growth.
2. The fictional profits and the large bonuses they drive create a “Gresham’s” dynamic in which bad ethics tends to drive good ethics out of the marketplace. The CFO that fails to emulate the fraud recipe will report far lower profits in the near term and will fear losing his job. More junior executives whose compensation is based on the firm’s reported income have perverse incentives to engage in accounting fraud to ensure that the firm “hits the number” and have reduced incentives to blow the whistle on frauds.
3. Lenders engaged in accounting control fraud create “echo” epidemics of fraud. They use their powers to hire and fire and create compensation systems to create perverse incentives in other fields: among their employees, “independent” professionals, and agents (e.g., loan brokers).
4. When several large lenders follow similar fraud strategies they can hyper-inflate financial bubbles.

Anti-consumer control frauds can also turn markets perverse by creating Gresham’s dynamics. Chinese infant formula provides a good example. Dishonest firms drove honest firms from the market — maiming hundreds of thousands of infants’ health.

“Punting the Pundits” is an Open Thread. It is a selection of editorials and opinions from around the news medium and the internet blogs. The intent is to provide a forum for your reactions and opinions, not just to the opinions presented, but to what ever you find important.

Thanks to ek hornbeck, click on the link and you can access all the past “Punting the Pundits”.

Bob Herbert The Data and the Reality

I keep hearing from the data zealots that holiday sales were impressive and the outlook for the economy in 2011 is not bad.

Maybe they’ve stumbled onto something in their windowless rooms. Maybe the economy really is gathering steam. But in the rough and tumble of the real world, where families have to feed themselves and pay their bills, there are an awful lot of Americans being left behind.

A continuing national survey of workers who lost their jobs during the Great Recession, conducted by two professors at Rutgers University, offers anything but a rosy view of the economic prospects for ordinary Americans. It paints, instead, a portrait filled with gloom.

Thom Hartman: Cool Our Fever

We live in a democracy and policies represent our collective will. We cannot blame others. If we allow the planet to pass tipping points…it will be hard to explain our role to our children. We cannot claim…that “we didn’t know.”

– Jim Hansen, Director, NASA Goddard Institute for Space Studies1

But during the past decade, as the train rolls along eastward from Frankfurt, I’ve seen a dramatic change in the scenery and the landscape. First there were just a few: purplish-blue reflections, almost like deep, still water, covering large parts of the south-facing roofs as I looked north out the window of the train. Solar panels.

Then, over the next few years, the purplish-blue chunks began to spread all over, so now when I travel that route it seems like about a third-and in many towns even more-of all the roofs are covered with photovoltaic solar panels.

Eugene Robinson Danger ahead for the GOP

It’s been not quite two months since Republicans won a sweeping midterm victory, and already they seem divided, embattled and – not to mince words – freaked out. For good reason, I might add.

Sen. Lindsey Graham captured the mood with his mordant assessment of the lame-duck Congress: “Harry Reid has eaten our lunch.” Graham’s complaint was that the GOP acquiesced to a host of Democratic initiatives – giving President Obama a better-than-expected deal on taxes, eliminating “don’t ask, don’t tell,” ratifying the New START treaty – rather than wait for the new, more conservative Congress to arrive.

It was a “capitulation . . . of dramatic proportions,” Graham said in a radio interview last week. “I can understand the Democrats being afraid of the new Republicans. I can’t understand Republicans being afraid of the new Republicans.”

Oh, but there’s reason to be very afraid.

I told you we would be revisiting L. Randall Wray’s third piece on Title Fraud, well he’s written a new piece for Bezinga that kind of concisely summarizes the problem-

Time to Audit the Remic Trusts

By L. Randall Wray, Benzinga Columnist

December 23, 2010 12:43 PM

We now know that the “mortgage backed” securities were not backed by mortgages. In reality they are unsecured debt. The “pooling and servicing agreements” (PSAs) that govern securitization require that the mortgage documents (including the wet ink notes as well as a clean chain of title) are transferred in a timely manner to the trustees. This was rarely and perhaps never done, because it was counter to the recommendation made by MERS (Mortgage Electronic Registry System). Instead, notes were either destroyed or held by the servicers to speed the foreclosures that were always envisioned as the end result of the mortgage origination process. Not only does this practice render the securities fraudulent but it also violates the federal tax laws that govern the REMICs-meaning back taxes are due.

But worse than all that, by breaking the chain of title and by destruction of documents, MERS and the servicers have jeopardized the entire system of property rights. Most, perhaps all, foreclosures have been fraudulent, which means that resales of the homes are also frauds. It goes without saying that the original mortgages were frauds from the very beginning-to complete the transformation to the ownership society it was necessary to ensure that by construction, default was inevitable. Either the homeowner would be unable to pay, or the servicer would “lose” the payments. By obscuring the chain of title, it would be impossible for the debtors or the courts to sort things out. Separating home owners from their property was necessary to ensure that we can create Bush’s ownership society. It is the modern form of the feudal foreclosures and seizures of peasant lands that concentrated ownership in the hands of agricultural capitalists-creating the first ownership society.

The scale of the problem is huge. Some estimate that as many as $6.4 trillion worth of home mortgages (33 million of them) are frauds, with destroyed or doctored documents. Probably all of the $1.4 trillion worth of private label residential mortgage “backed” securities violate the PSAs-so are actually unsecured debt. Three state supreme courts have already ruled that MERS cannot be the owner of mortgages, hence, has no standing in foreclosures. MERS contaminated 65 million mortgages-decoupling the mortgages from the notes and destroying the chain of title. A consortium of investors (including PIMCO, Black Rock, and Fannie and Freddie) that owns $600 billion of the private label securities are suing the banks to take them back. One investor action alone against Bank of America concerns $47 billion in fraudulent mortgages-enough to put a serious dent in its purported net worth of $230 billion (which is probably a vast overstatement resulting from cooking the books). A suit in California seeks $60-$120 billion in lost recording fees alone. All 50 states are investigating the servicers for fraud. The top five servicers (Bank of America, Wells Fargo, JPMorgan Chase, Citigroup, GMAC-Ally) have 60% of the business and include the top four banks that account for 40% of the banking business.

REMICs–

Real Estate Mortgage Investment Conduits, or “REMICs,” (sometimes also called Collateralized mortgage obligations) are a type of special purpose vehicle used for the pooling of mortgage loans and issuance of mortgage-backed securities. They were introduced in 1987 and are defined under the United States Internal Revenue Code (Tax Reform Act of 1986), and are the typical vehicle of choice for the securitization of residential mortgages in the US.

More Wray-

Anatomy of Mortgage Fraud, Part III: MERS’S Role in Facilitating the Mother of All Frauds

L. Randall Wray, Huffington Post

Posted: December 16, 2010 09:29 AM

Enter MERS — another link in the food chain — created by the banks in 1997 in preparation for the boom and bust. MERS was set up to be a foreclosure mill. It would break the centuries-old custom that protected property rights by requiring every sale of property to be publicly recorded, and requiring that any creditor claiming a right to foreclose to demonstrate clear title, with an endorsed note in the creditor’s name and a record at the county office showing transfer of the property.

The banksters did not want to go through all that paperwork, and needed to subvert the transparency that would shine light on their crimes. Hence, they set up a fraudulent shell corporation that claimed to be the mortgagee; while the original sale would be recorded at the county office, subsequent sales and purchases of the mortgage would be recorded only by an “electronic handshake” between two “members” of MERS. Even that record was considered by the banksters to be purely voluntary — MERS did not require members to actually record transactions. If they found it more convenient to conceal the transfers, that was permitted.

…

MERS deliberately undermined the legality of the loans and the records. Homeowners could no longer search the public records to find out who actually held their mortgage — the record would show MERS as owner, but MERS was a shell corporation with no real employees. It was not a servicer, so the homeowner could not make mortgage payments to the purported owner. As a result, checks were sent to the wrong servicers; servicers credited the wrong accounts; servicers claimed delinquencies on homeowners who never missed a payment, and piled late fees and delinquencies on the wrong borrowers; sheriffs were sent to break down the doors of the wrong houses, and threw belongings out on the street in front of homes on which there was no mortgage at all. MERS purposely created the mess, at the behest of banksters who do not want mere legal technicalities to get in the way of stealing homes. The undermining of the public records was not a mistake — it was MERS’s business model, created by the member banks.

And MERS helped banksters to defraud securities holders. Banks not only separated the mortgages from the notes, but they even destroyed the notes as they entered the mortgages into MERS’s electronic data base. MERS told servicers that it is “customary” practice to retain notes, not to endorse them over to REMIC trustees as required both by federal tax law and by the PSAs that govern the trusts. This made the securities a “nullity” — as the Supreme Court ruled over a hundred years ago — because a mortgage without a note is unenforceable in foreclosure. At best, the securities are unsecured debt, with no real property behind them.

In any case, the mortgages put into the trusts did not meet the representations made to investors — so even if the notes had been properly endorsed over to the trusts, the securities could be turned back to the banks. By creating a completely fraudulent electronic registry system — in which data would be entered only if banks found it convenient to do so, and in which data could be modified at any time by any member of MERS — MERS made it easy to conceal the securities frauds. Destruction or forgery of the paperwork was absolutely necessary to cover the trail of fraud from origination of the mortgage to securitization and finally to the inevitable foreclosure. Again, destruction of documents was not a mistake. It was the business model.

L. Randall Wray-

• Anatomy of Mortgage Fraud, Part I: MERS’s Smoking Gun 12/9/10
• Anatomy of Mortgage Fraud, Part II: The Mother of All Frauds 12/13/10
• Anatomy of Mortgage Fraud, Part III: MERS’S Role in Facilitating the Mother of All Frauds 12/16/10