Of public capital and public interest

First, on the matter of public capital, we are the 99.9%, according to this Forbes article/opinion piece carried on Yahoo Finance, excerpts extracted:

The Top 0.1% Of The Nation Earn Half Of All Capital Gains

The top 0.1%-- about 315,000 individuals out of 315 million-- are making about half of all capital gains on the sale of shares or property after 1 year; and these capital gains make up 60% of the income made by the Forbes 400.

The [Bush 2003]reduction in the [capital gains] tax from 20% to 15% continued the step-by-step tradition of cutting this tax to create more wealth. It had first been reduced from 35% in 1978 at a time of stock market and economic stagnation to 28%. Again 1981, at the start of the Reagan era, it was reduced again to 20%-- raised back to 28% in 1987, on the eve of the October 19 th-- 23% crash in the market [obvious transcription error in article here]. In 1997 Clinton agreed to reduce it back to 20%, which move was an inducement for the explosion of hedge funds and private equity firms-- the most "rapidly rising cohort within the top 1 per cent."

The facts are clear according to the Congressional Budget Office more than 80% of the increase in income inequality was the result of an increase in the share of household income from capital gains. In fact, you can go so far as to claim that "Capital Gains income is the most unevenly distributed-- and volatile-- source of household income," according to Laura D'Andrea Tyson, University of California business professor and former chairwoman of the Council of Economic Advisers under President Clinton.

I commend you to the late Justice Louis Brandeis warning to the nation that " We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can't have both."

Coincidentally, Guambat finally received his New Yorker magazine for October 24 in the mail today (thank you Captain Jack), and found resonance with its cover:



As as to public interest in those capital gains (and losses), consider the opinion of US District Court Judge Jed S. Rakoff, when asked to rubber stamp a "settlement" of a complaint by the SEC against Citibank. On October 19, 2011, the U.S. Securities and Exchange Commission
(the "S.E.C.") filed lawsuit [as well as a parallel Complaint filed the same day against Citigroup employee Brian Stoker], accusing defendant Citigroup Global Markets Inc. ("Citigroup") of a substantial securities fraud. Excerpts, snippets and such follow.

Although this would appear to be tantamount to an allegation of knowing and fraudulent intent ("scienter," in the lingo of securities law), the S.E.C., for reasons of its own, chose to charge Citigroup only with negligence.

The Court turns first to the standard of review. In its original Memorandum in support of the proposed Consent Judgment! filed before the case had been assigned to any judge, the S.E.C. expressly endorsed the standard of review set forth by this Court in its Bank of America decisions, i.e., "whether the proposed Consent Judgment ... is fair, reasonable, adequate, and in the public interest."

In its most recent filing in this case, however, the S.E.C. partly reverses its previous position and asserts that, while the Consent Judgment must still be shown to be fair, adequate, and reasonable, "the public interest ... is not part of [the] applicable standard of judicial review." This is erroneous.

As a fall-back, the S.E.C. suggests that, if the public interest must be taken into account, the S.E.C. is the sole determiner of what is in the public interest in regard to Consent Judgments settling S.E.C. cases. That, again, is not the law.

[A] court, while giving substantial deference to the views of an administrative body vested with authority over a particular area, must still exercise a modicum of independent judgment in determining whether the requested deployment of its injunctive powers will serve, or disserve, the public interest. Anything less would not only violate the constitutional doctrine of separation of powers but would undermine the independence that is the indispensable attribute of the federal judiciary.

Before the Court determines whether the settlement is fair, it must ask a preliminary question: fair to whom? As the holding of Trucking Employers quoted above makes plain, the answer is fair to the parties and to the public.

Purely private parties can settle a case without ever agreeing on the facts, for all that is required is that a plaintiff dismiss his complaint. But when a public agency asks a court to become its partner in enforcement by imposing wide-ranging injunctive remedies on a defendant, enforced by the formidable judicial power of contempt,3 the court, and the public, need some knowledge of what the underlying facts are: for otherwise, the court becomes a mere handmaiden to a settlement privately negotiated on the basis of unknown facts, while the public is deprived of ever knowing the truth in a matter of obvious public importance.

Applying these standards to the case in hand, the Court concludes, regretfully, that the proposed Consent Judgment is neither fair, nor reasonable, nor adequate, nor in the public interest. Here, the S.E.C.'s long-standing policy - hallowed by history, but not by reason - of allowing defendants to enter into Consent Judgments without admitting or denying the underlying allegations,4 deprives the Court of even the most minimal assurance that the substantial injunctive relief it is being asked to impose has any basis in fact.

As a matter of law, an allegation that is neither admitted nor denied simply that, an allegation. It has no evidentiary value and no collateral estoppel effect.

As for common experience, a consent judgment that does not involve any admissions and that results in only very modest penalties is just as frequently viewed, particularly in the business community, as a cost of doing business imposed by having to maintain a working relationship with a regulatory agency, rather than as any indication of where the real truth lies. This, indeed, is Citigroup's position in this very case.

Of course, the policy of accepting settlements without any admissions serves various narrow interests of the parties.

In this case, for example, Citigroup was able, without admitting anything, to negotiate a settlement that (a) charges it only with negligence, (b) results in a very modest penalty, (c) imposes the kind of injunctive relief that Citigroup (a recidivist) knew that the S.E.C. had not sought to enforce against any financial institution for at least the last 10 years, and (d) imposes relatively inexpensive prophylactic measures for the next three years.

In exchange, Citigroup not only settles what it states was a broad-ranging four-year investigation by the S.E.C. of Citigroup's mortgage-backed securities offerings, but also avoids any investors' relying in any respect on the S.E.C. Consent Judgment in seeking return of their losses. If the allegations of the Complaint are true, this is a very good deal for Citigroup; and, even if they are untrue, it is a mild and modest cost of doing business.

It is harder to discern from the limited information before the Court what the S.E.C. is getting from this settlement other than a quick headline. By the S.E.C.'s own account, Citigroup is a recidivist [external link added], and yet, in terms of deterrence, the $95 million civil penalty that the Consent Judgment proposes is pocket change to any entity as large as Citigroup.

While the S.E.C. claims that it is devoted, not just to the protection of investors but also to helping them recover their losses, the proposed Consent Judgment, in the form submitted to the Court, does not commit the S.E.C. to returning any of the total of $285 million obtained from Citigroup to the defrauded investors....

the Court is forced to conclude that a proposed Consent Judgment that asks the Court to impose substantial injunctive relief, enforced by the Court's own contempt power, on the basis of allegations unsupported by any proven or acknowledged facts whatsoever, is neither reasonable, nor fair, nor adequate, nor in the public interest.

It is not reasonable, because how can it ever be reasonable to impose substantial relief on the basis of mere allegations? It is not fair, because, despite Citigroup's nominal consent, the potential for abuse in imposing penalties on the basis of facts that are neither proven nor acknowledged patent. It is not adequate, because, in the absence of any facts, the Court lacks a framework for determining adequacy. And, most obviously, the proposed Consent Judgment does not serve the public interest, because it asks the Court to employ its power and assert its authority when it does not know the facts.

An application of judicial power that does not rest on facts is worse than mindless, it is inherently dangerous. The injunctive power of the judiciary is not a free roving remedy to be invoked at the whim of a regulatory agency, even with the consent of the regulated. If its deployment does not rest on facts - cold, hard solid facts, established ei by admissions or by trials - it serves no lawful or moral purpose and is simply an engine of oppression.

Finally, in any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth.

the S.E.C., of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency's contrivances.
Accordingly, the Court refuses to approve the proposed Consent Judgment. Instead, the Court hereby consolidates this case with the Stoker action, adopts the Case Management Order in that action as equally applicable to the instant case, and directs the parties to be ready to try this case on July 16, 2012.

Clearly, the Court believes the public not only can handle the truth hidden by settlements such as this, but they are entitled to know it. We need more same same decisions.

Unlike the last two?

Bernanke’s Next Easing May Not Aid Jobless

Federal Reserve Chairman Ben S. Bernanke will probably try to spur economic growth this month by cutting near-record-low borrowing costs, economists said. His new stimulus may not aid the 14 million Americans without work.

QEs I and II went down like the Titanic if all you watched were employment figures and housing prices/foreclosures.

But have a squidge of the DJIA. QE I ushered in one of the great bull runs in history. QE II somewhat less so, given that it was seen more as taking the punch bowl away than spiking it with a double, but still we're not that far from the post-Greatish Recession highs, and holding above Dow 11000.

All in all, the stocks and banks (Wall Street) have been fairly well bailed out. But Joe Sixpack (Main Street)? How's that workin' out for ya?

At least Joe the Plumber seems to have got a job. Never let a bit of media frenzy go to waste: Joe The Plumber Gets A Teevee Show

And, he's stimulating (government) employment:

Ohio state snooper who targeted Joe the Plumber gets new government job

GOP says Joe the Plumber may challenge Kaptur in '12

Guambat's off to have a stein of tea, Texas tea, and enjoy the Labor Day off. This could be the Labor Decade off.

Tax-Free speech

Do we live in the Age of Corporatism?

Well, as we have seen, the Supreme Court has determined that corporations are as free to back politicians and political parties as your average citizen. Sort of a palsy-walsy, in pari passu patronage system, neh?

After all, just like your average citizen, corporations pay their fair share of taxes, don't they?

Don't they?

Ask Barry Ritholtz: Corporate Tax Rates, Then and Now

The GAO reported in 2008 that “two out of every three United States corporations paid no federal income taxes from 1998 through 2005.”

Since tomorrow is April 15th, it is a good time to look at our corporate tax rates. As the graphic below shows, the change in corporate tax rates over the past half century is astounding.

Corporate Taxes as a Percentage of Federal Revenue
1955 . . . 27.3%
2010 . . . 8.9%

Corporate Taxes as a Percentage of GDP
1955 . . . 4.3%
2010 . . . 1.3%

Individual Income/Payrolls as a Percentage of Federal Revenue
1955 . . . 58.0%
2010 . . . 81.5%

The average citizen is now footing way more of the government bill and getting far less per capita bang for her buck in the political arena than corporations. This is a trend that has gone on Guambat's entire life.

Sorry, kids. Hope you find a way to survive in the Age of Corporatism.

That which doesn't kill Wall St. makes it stronger

Paul B. Farrell, that irascible old coot, is at it again.

Commentary: Too late to jail bank CEOs; only revolution will succeed

Just three years after Wall Street’s crooks “brought down the world’s economy” Goldman’s Blankfein and his buddies are paying record bonuses, and laughing at us.

Seriously, think about it folks: Since the 2008 meltdown magazines and newspapers have analyzed the 2008 crash to death. It really is old news, history. Journalists churned out book after book: “Greenspan’s Bubbles,” “House of Cards,” “Trillion Dollar Meltdown,” “13 Bankers,” “Dumb Money,” “Bailout Nation,” “All the Devils Are Here,” “The Big Short,” “Too Big to Fail,” “The Failure of Capitalism,” “This Time is Different,” “And Then the Roof Caved In,” on and on, ad nauseum. All talk, no action, and no effect.

Get it? With every book, every editorial, every expose the past three years, Wall Street bankers actually grew stronger, got richer, more arrogant, bolder on bonuses, impervious to attacks, even taunting us, like the dictators Mubarak, Ben Ali and Gadhafi, confident they could do no wrong, confident no one would rebel. Jail? Our moment to act is long past. We blinked.

I hope that whetted your appetite. The rest is classic. So classic, Guambat wonders if ever Mr. Farrell was a long-haired type, or is just now getting around to being long harried.

Divide and conquer - With Prequel

UPDATE NOTE: This following story is related enough to the subject of this post as to mention here rather than a new post, and serves better to introduce this post than Post Script it:

Plutocracy Now: What Wisconsin Is Really About

Income inequality has grown dramatically since the mid-'70s -- the bulk of our growing inequality has been a product of skyrocketing incomes among the richest 1 percent and—even more dramatically—among the top 0.1 percent. It has, in other words, been CEOs and Wall Street traders at the very tippy-top who are hoovering up vast sums of money from everyone, even those who by ordinary standards are pretty well off.

American politicians don't care much about voters with moderate incomes. relentless concentration of wealth and power among the rich is deeply corrosive in a democracy, and this makes it a profoundly political problem as well.

How did we get here? In the past, after all, liberal politicians did make it their business to advocate for the working and middle classes, and they worked that advocacy through the Democratic Party. But they largely stopped doing this in the '70s, leaving the interests of corporations and the wealthy nearly unopposed.

it's not that the working class has abandoned Democrats. It's just the opposite: The Democratic Party has largely abandoned the working class.

because politicians don't respond to the concerns of voters, they respond to the organized muscle of institutions that represent them. With labor in decline, both parties now respond strongly to the interests of the rich—whose institutional representation is deep and energetic—and barely at all to the interests of the working and middle classes.

This has produced three decades of commercial and financial deregulation that started during the administration of a Democrat, Jimmy Carter, gained steam throughout the Reagan era, and continued under Bill Clinton. There were a lot of ways America could have responded to the twin challenges of '70s-era stagflation and the globalization of finance, but the policies we chose almost invariably ignored the stagnating wages of the middle class and instead catered to the desires of the superrich

Income volatility has risen dramatically over the past 30 years. The odds of experiencing a 50 percent drop in family income have more than doubled since 1970, and this volatility has increased for both high school and college grads. At the same time, traditional pensions have almost completely disappeared

This didn't all happen thanks to a sinister 30-year plan hatched in a smoke-filled room, and it can't be reined in merely by exposing it to the light. It's a story about power. It's about the loss of a countervailing power robust enough to stand up to the influence of business interests and the rich on equal terms. With that gone, the response to every new crisis and every new change in the economic landscape has inevitably pointed in the same direction. And after three decades, the cumulative effect of all those individual responses is an economy focused almost exclusively on the demands of business and finance.

For this to change, America needs a countervailing power as big, crude, and uncompromising as organized labor used to be.

But what?

Over the past 40 years, the American left has built an enormous institutional infrastructure dedicated to mobilizing money, votes, and public opinion on social issues, and this has paid off with huge strides in civil rights, feminism, gay rights, environmental policy, and more. But the past two years have demonstrated that that isn't enough. If the left ever wants to regain the vigor that powered earlier eras of liberal reform, it needs to rebuild the infrastructure of economic populism that we've ignored for too long. Figuring out how to do that is the central task of the new decade.

Now back to the original post:

Guambat is unimpressed with the tempest in Wisconsin, and elsewhere. Unimpressed with the base cynicism of it. It's a classic case of the big money guys playing around with a divide and conquer tactic. Don't fall for it.

The pitch is being made that state and local governments just cannot afford the overly paid workers on their payroll. It's a pitch aimed to divide middle class, many of who are tea sippers, many of whom are laid off, many of whom are in uninspiring government employment.

And the cynical little game is getting some traction, based on this article:

GOP governors gambling on challenge to public-sector unions

Michael Wernick, 61, a longtime body and fender man, says his financial fortunes have gone nowhere but down over the past decade. His salary is stagnant, and his 401(k) has shrunk, derailing his retirement plans.

So as he watches Gov. Scott Walker (R) take on the public-employee unions by not only demanding steep reductions in their pension and health-care benefits but by also insisting they give up many of their collective-bargaining rights, Wernick is quietly cheering him on.

"Maybe there is a little bit of jealousy here, but public workers have what I don't have."

But do public workers really have what private sectors don't have? Maybe in individual cases, but across the board, it's hardly a clear story.

For instance, The Business Insider, hardly a screaming socialist union voice, has this:

For Anyone Who Thinks Wisconsin State Workers Are Overpaid...

Paul Ryan and everyone else freaking out at the Wisconsin's striking state employees keep getting one fact wrong.

Wisconsin's public sector workers get paid LESS than the private sector.

You can see this in a couple of charts from economist Menzie Chinn. First, national compensation by education level. Public workers earn less at every level except for high school dropouts.

Second, here's how this breaks down in Wisconsin. Real annual compensation is 4.8% lower for public sector workers.

Read more: http://www.businessinsider.com/wisconsin-public-sector-wages-2011-2#ixzz1FE9SzfX1

And this perspective:

Comparing Public and Private Sector Compensation over 20 Years, April 2010

The current recession and the resulting fiscal difficulties faced by state and local governments have renewed interest in the compensation of the public workforce in regard to pay, pensions, and other benefits. In this report we examine the extent to which state and local government compensation in the United States is comparable to compensation in the private sector.

The analysis finds that:

• Public and private workforces differ in important ways. For instance, jobs in the public sector require much more education on average than those in the private sector. Employees in state and local sectors are twice as likely as their private sector counterparts to have a college or advanced degree.

• Wages and salaries of state and local employees are lower than those for private sector workers with comparable earnings determinants (e.g., education). State employees typically earn 11 percent less; local workers earn 12 percent less.

• Over the last 20 years, the earnings for state and local employees have generally declined relative to comparable private sector employees.

• The pattern of declining relative compensation remains true in most of the large states we examined, although some state-level variation exists.

• Benefits (e.g., pensions) comprise a greater share of employee compensation in the public sector.

• State and local employees have lower total compensation than their private sector counterparts. On average, total compensation is 6.8 percent lower for state employees and 7.4 percent lower for local workers, compared with comparable private sector employees.

On the other hand, the big boys have this to say,

Employee Compensation in State and Local Governments

State and local governments face large budget deficits
as revenues have stagnated and spending has remained at
high levels.

To reduce deficits, large savings can be found
in the generous compensation packages of the nation’s Fat Cat Finance and Industry Management
20 million state and local workers.

In 2008, wages and
benefits of $1.1 trillion accounted for half of total state and
local government spending. This bulletin examines state
and local compensation costs, with a focus on the lucrative
pensions enjoyed by public sector workers.

Public sector pay averaged $39.66 per hour in 2009, which
was 45 percent higher than the private sector average. The
public sector advantage was 34 percent in wages and 70
percent in benefits.

So, we all know that there are lies, damned lies and statistics, but what is the smoke and mirrors going on here?

Ezra Klein has sort of a bead on it:

Are Wisconsin's state and local workers overpaid?

Consider this analysis the Economic Policy Institute conducted comparing total compensation -- that is to say, wages and health-care benefits and pensions -- among public and private workers in Wisconsin. To get an apples-to-apples comparison, the study's author controlled for experience, organizational size, gender, race, ethnicity, citizenship and disability, and then sorted the results by education. Here's what he got:

"Wisconsin public-sector workers face an annual compensation penalty of 11%. Adjusting for the slightly fewer hours worked per week on average, these public workers still face a compensation penalty of 5% for choosing to work in the public sector."

The deal that unions, state government and -- by extension -- state residents have made to defer the compensation of public employees was a bad deal -- but it was a bad deal for the public employees, not for the state government.

State and local governments were able to hire better workers now by promising higher pay later. They essentially hired on an installment plan.

And now they might not follow through on it. The ones who got played here are the public employees, not the residents of the various states. The residents of the various states, when all is said and done, will probably have gotten the work at a steep discount. They'll force a renegotiation of the contracts and blame overprivileged public employees for resisting shared sacrifice.

State and local budgets are in bad shape. They'll need deep reforms across a variety of categories, from tax increases to service cuts to changes to employee compensation.

But the focus on public employees -- and the accompanying narrative that they're greedy and overcompensated -- obscures a lot of that: It makes it seem as if the decisions that have to be made are easy and costless and can be shunted onto an interest group that some of us, at least, don't like.

It's the Republican version of when liberals suggest we can balance the budget simply by increasing taxes on the rich. But it's not true.

Guambat begins to suspect this whole thing is an effort to shift focus from the big bucks the big guys make. Stir up a battle in the suburbs and who knows what's going on in the yacht harbor?

For instance, remember the publicity about the huge CEO and other highflyer pay packets? Well, now, if we can just pit the ex-body mechanic against the local teacher, they won't be paying much attention to that little item, which is steadily returning to business as usual

And this disparity of the big money at the top is most likely what is behind the lies being spread around as statistics, as in this:

Federal salaries fall behind private sector, panel says

Official numbers released by the government late last week show salaries of federal workers falling slightly farther behind their private-sector counterparts in the last year, by an average of 2.1 percent across the country.

The government's numbers also show that higher-paid, more senior employees tend to fall behind their counterparts at private companies, whereas lower-paid employees in government come out ahead.

The non-government jobs often include bonuses or incentive pay in financial services and other industries, which helps skew those salaries up,said Allan G. Hearne, pay expert with the Office of Personnel Management.

"The highest-paid federal employee makes $400,000 a year," said Philip M. Doyle, assistant commissioner for compensation for the Bureau of Labor Statistics, referring to the president.

"There's a cap on federal salaries that's going to keep the higher end from going too high."

This story was picked up by the Federal Computer Weekly, which noted such studies were being hotly contested by the usual suspects:

Federal vs. private pay: The latest take on who makes more

These numbers, compiled by the Bureau of Labor Statistics, are likely to be hotly contested. USA Today issued a report in March that said the typical federal worker is paid 20 percent more than a private-sector employee in the same occupation. Salary figures listed by USA Today did not include benefits such as health insurance and pensions.

The CATO Institute, a libertarian think tank, arrived at a similar conclusion, as did The Heritage Foundation, another conservative association, which also issued a report stating that federal employees earn 22 percent more in hourly wages than the private sector, reported FCW on July 26. Republicans had cited these earlier reports as examples of overspending in the government.

BLS’ report also found different pay disparities based on an employees’ level, with higher-paid executives experiencing a larger wage gap than lower-paid employees, who may earn more than those in the private sector, the Post states.

Republican bankrupt State aid plan

Before getting into this, just know that in bankruptcy, owners of capital lent to the debtor are usually protected by security agreements, at least to some extent. Owners of labor, however, have no security over the debts due them for their efforts, and generally get nothing.

This story is another in the classic struggle between capital and labor. And when that economic struggle turns political, it's battle to the death between Republicans (capital) and Democrats (labor). Not that either party has ever died, but it certainly feels like a death to most of us on Main Street who suffer the wars above and around us.

Now that Wall Street and Big Business has been thoroughly bailed out by the US Treasury and Federal Reserve, which started with the TARP and other massive helicopter droppings of money under the Bush Administration and landed in the lap of luxury of the Obama Administration, the Republicans want to pull the plug on "bailing out" Main Street.

Bailing out capital is one thing that must be allowed come what may, but bailing out labor? Nah.

State bankruptcy bill imminent, Gingrich says

For months he has championed letting states file for bankruptcy in order to handle their long-term budget problems despite resistance from states and investors in the $2.8 trillion municipal bond market.

"We're faced with the danger that the states are going to try to show up and say to Washington: You have to give us money," Gingrich said. "And I think we have to have an alternative that allows us to say no."

Because states are sovereign, they cannot declare bankruptcy as cities can, and most have provisions in their constitutions that make defaulting on debt next to impossible.

And California -- a state which Gingrich said would likely turn to Congress for financial help along with New York and Illinois -- said on Friday it has no interest in using bankruptcy to solve its fiscal problems.

"Just the availability of a bankruptcy option and the potential bond default could severely damage state credit ratings and destroy the trust of bondholders," said New York State Comptroller Thomas P. DiNapoli.

"The very fact of the bill existing... allows governors to sit down with unions and say: 'Look you, negotiate with us or I'm taking the state into bankruptcy,'" Gingrich said.

Gingrich's pals in the Bush administration (and his presumed enemies in Obama's) could have done the same thing with Big Banks and other big business like GM and AIG, forcing them into bankruptcy rather than buying in and "loaning" more money, at zero-ish interest rates. But that just cuts too close to their home.

Guambat supposes it is not very near their home to force pension funds into bankruptcy, by contrast. Guambat's pension, like most of us on Main Street, is Social Security. He reckons once Newt and his boys get done with the pensions, they're off to bust up Social Security too, like they've just done with Medicare. It's just another unfair income redistribution mechanism to them.

U.S. State Bankruptcy Weighed by Republicans Blocking Aid

U.S. House Republicans, emboldened by the majority they won in November elections, want to send a message to U.S. states grappling with soaring pension liabilities: Don’t come to us for a handout.

Fewer than half of state retirement systems had assets to pay for 80 percent of promised benefits in their 2009 fiscal years, according to data compiled by Bloomberg. They now face the end to federal stimulus payments granted two years ago to help them cope with the deepest recession in 80 years.

“We are not interested in a bailout,” Representative Paul Ryan, a Wisconsin Republican and chairman of the House Budget Committee, said at a Jan. 6 forum in Washington.

“Should taxpayers in Indiana, who have paid their bills on time, who have done their job fiscally, be bailing out Californians, who haven’t,” he said. “No, that’s a moral hazard we are not interested in creating.”

[Guambat would extend that rhetoric to ask, should taxpayers in Indiana, who have paid their debts on time, who have done their job fiscally, be bailing out Wall Street and the Big Banks, who haven't? No, that's a moral hazard that they created very purposefully and Guambat is not interested in perpetuating.]

Utah Representative Jason Chaffetz said “My bill really sends a warning shot across the bows of the states to get their fiscal houses in order,” he said. “It’s intended to wake up the states, wake up the public, to let them know they can’t just run to the federal government to bail them out.”

Talk of allowing states to declare bankruptcy may affect investors’ faith in the general-obligation debt they issue, said Gary Pollack, head of bond trading at Deutsche Bank AG’s private wealth management unit in New York.

“One of the reasons we point to them and say that they’re great is that they can’t declare bankruptcy,” Pollack said of general-obligation debt, which is backed by the taxing power of states. “It’s just another piece of negative news that muni market doesn’t need right now.”

Republican calls in November for less federal spending resonated with voters angry over the billions of taxpayer dollars spent on financial institutions blamed for causing the financial crisis. Republicans will apply the same argument as they move to prevent states from leaning on the federal government.

Guambat hopes that Main Street sees through the subterfuge. Bailing out the banks and bailing out the guy next door are not in pari passu, pal.

Here's were all the fuss has taken root, in the following non-contextual excerpts from parts of a speech by Newt Gingrich last November (worth reading in whole):

I also hope the House Republicans are going to move a bill in the first month or so of their tenure to create a venue for state bankruptcy, so that states like California and New York and Illinois that think they’re going to come to Washington for money can be told, you know, you need to sit down with all your government employee unions and look at their health plans and their pension plans and frankly if they don’t want to change, our recommendation is you go into bankruptcy court and let the bankruptcy judge change it, and I would make the federal bankruptcy law prohibit tax increases as part of the solution, so no bankruptcy judge could impose a tax increase on the people of the states (applause).

I think reclaiming liberty is a very, very important concept.

What I want to focus on tonight is the concept of replacement. I think we have to move from a rejection model of conservatism to a replacement model of conservatism and these two words are enormously important.

Think of the Declaration of Independence as an act of rejection. However, that didn’t make us independent. But it was the replacement of British military power with American military power which made the difference.

A few years later, the wisest and most sophisticated Americans had come to the conclusion that the Articles of Confederation were too weak for the country to survive. And they met for 55 days in Philadelphia and they wrote the Constitution of the United States which was an act of replacement.

The American people repudiated the left in 1972. The left didn’t notice it because the power of the left isn’t in popular elections. The power of the left is in tenured academics. The power of the left is the news media. The power of the left is the bureaucracy. The power of the left is union leadership. The power of the left is inside the judgeships. The power of the left is in fact in the Hollywood literati.

The fact is rejection is an inadequate, long-term strategy if you are serious about saving America, because rejection doesn’t fix a center left coalition.

And that requires us to adopt, I believe, a fundamentally new strategy: a strategy of replacement. We have to look at every level of American society, and every level of American government, and we have to decide that we are going to replace the left.
When I describe replacement, I think there are five goals for replacement. I will describe them very briefly and then take a minute on each one. The first goal has to be to reassert and reestablish the American Exceptionalism.

This is the most important argument of the next twenty years. And it’s very simple. American exceptionalism is a specific reference to a fact, yhat the founding document of the United States of America, a political document, The Declaration of Independence, says, “We hold these truths”, not this ideology, not these principles, not this theory, “We hold these truths to be self-evident, that all men are created equal” and “that they are endowed by their Creator with certain unalienable rights among which are life, liberty, and the pursuit of happiness.”

it poses for the National Education Association, the simple clear question, “How do you explain Creator?” “How do you explain unalienable rights?” Founding Fathers are clear about this. The Founding Fathers believed, this is why it’s American exceptionalism, it’s the only country in history that says, “Power comes from God, to each one of you, personally. You are personally sovereign”

There’s no provision in the Declaration of Independence for an entitlement to happiness. There’s no provision for a Department of Happiness (laughter). There’s not provision for happiness stamps, so that the under-happy can be compensated (laughter). There’s no provision for the right to sue if you’re unhappy (laughter). And there’s no provision for a politician to walk in and say, “I am taking from the overly happy to redistribute to the underly happy (applause and laughter), and that’s why Obama-ism is a fundamental, radical break from all of American history and represents some weird combination of academic theory and European secular-socialism. But then that leads us to core values. Because American exceptionalism means the work ethic, which is why I believe we should replace all unemployment compensation with a training program.

all you have to do is reform seven areas: litigation, regulation, taxation, education, health, energy, and infrastructure. You reform those seven, piece of cake, we got it done, that’s a fact. (laughter and applause).

The second goal has to be to commit ourselves to benchmarking China and India, and undertaking the reforms necessary to be the most productive, most creative, and most prosperous country in the world, because that is the base to have a national security system that enables us to be the safest, and freest country.

The third goal has to be to recognize that government has been the fourth bubble after information technology in 1999, housing in 2007, and Wall Street in 2008. The government has to become dramatically smaller, dramatically less expensive, much more decentralized out of Washington, and that every major interest group, starting with the government employee unions, will fight bitterly against that kind of change.

The fourth is we have to have the courage to tell the truth about radical Islamists, and we have to have the courage to act on that truth.

And the fifth example is that we have to be prepared to say, with the deepest of meaning, that we truly believe that every American is endowed by their Creator with certain unalienable rights, among which are life, liberty, and the pursuit of happiness. And that we are determined to go into the poorest communities, of every part of America, whether it is in the valley, the inner city, poor rural areas, you name it. And we are going to change the culture, we are going to change the bureaucracy, we are going to change the tax code.

We can offer their children and grandchildren a vastly better future than the bureaucratic welfare state of dependency, coercion, and ineffectiveness (applause).

Anyway…so let me start with a key organizing principle of the next ten years. Job killing policies kill jobs. It’s only five words. I think it sort of captures it.

So a party, which has policies which kill jobs, creates income redistribution.

If we can arouse the community of faith, the community of belief, a community of patriotism, then the job Callista and I will have to do is very easy. And if we can’t, then our job’s hopeless.

Bank robbers

Brett Arends looks back, in disgust, on 2010, at the Great Bank Heist:

The great bank heist of 2010

They dodged the bullet of real reform, probably for all time. They bounced back to post huge profits, helped by legal theft from the middle class. They completed their takeover of both political parties — and bought themselves a new Congress even more pliable than the old one.

Middle-class America is flattened, devastated and broke. The bankers that caused it all have escaped punishment. They’re raking in huge profits. Oh, and the tax cuts just got extended for high earners, too!

In 2010, Wall Street’s year, Schwarzman’s only real sin was getting caught flaunting his contempt for the nation.

Far worse went on behind closed doors.

Consider the Dodd-Frank reform act — all 2,300 pages of it. Sure, it fills in a few regulatory gaps, ends a couple of the more gratuitous abuses. You have to throw a few scraps to the masses.

But most of the reforms are meaningless. New rule books and committees. Bah. They’re like half-built fences. Anyone can just walk around them.

Meanwhile, missing from this giant “reform” bill was any actual, serious reform like threatening crooked bankers with real jail time. Or ending the “other people’s money” racket of securitization, or smashing “too big to fail” megabanks into smaller firms that can never again threaten the republic.

Instead we’ve enshrined “too big to fail” as national policy. A standing taxpayer guarantee to the biggest banks. What a deal!

It’s amazing when you think about it.

Look at the chaos and catastrophe these guys have left in their wake. One middle-aged man in five is out of work. Tens of millions of families have been financially wiped out. The national debt has nearly doubled.

If inner-city gangs had done this to America, we’d have martial law. If Arabs had done it, we’d have launched another war.

Wall Street bankers? They’ve walked away scot free. And they’re actually being rewarded.

By keeping short-term interest rates near zero, the Fed is basically robbing your grandmother, and other hard-working savers, and giving to Wall Street. The banks

borrow from us for free, and then lend us back our own money at interest by purchasing Treasury bonds.

And in a perfect circle of cynicism, the beneficiaries of bailouts are now spending some of their loot lobbying our Congress to overrule us on reform.

The commercial banks and investment firms spent a total of $118 million lobbying just in 2010, according to the Center for Responsive Politics.

That included $4 million spent directly by Citigroup Inc., nearly $3 million by Bank of America Corp., $3.5 million by Goldman Sachs Group Inc. and $2.8 million by Schwarzman’s Blackstone.

This is in addition to the vast campaign contributions the top brass at these firms have lavished on pliable congressman, and indirect political lobbying through trade bodies like the American Bankers Association.

But it’s unfair to give the bankers all the credit for subverting democracy.

They couldn’t have done it without the Democrats.

Wall Street has spent years capturing the party establishment.

Think of the lavish campaign checks. The lucrative hedge fund “adviser” jobs. The pervasive influence of pinstriped “progressives” like Larry Summers and Bob Rubin.

This was the year the investment paid off. Big time.

the Democrats would have got a lot more credit — and contributions — from the rest of America if they’d stood up to Wall Street.

Sucking up to Wall Street didn’t help them anyway. Wall Street still turned Republican. The American Bankers Association, J.P. Morgan Chase & Co, Citigroup, Bank of America, even Goldman Sachs: This time around, more than half their donations went to the GOP.

Most Americans don’t realize it, but this talk of a “grassroots” and “anti-establishment” election was a bunch of hooey. What really happened was that Wall Street has just bought itself a new, even more compliant Congress.

The new Republicans are already fawning over the bankers. They’re promising to stop the restrictions on (ahem) “financial innovation.” Congressman Spencer Bachus — the next chairman of the House Financial Services Committee — actually said “Washington and the regulators are there to serve the banks.” Let the good times roll!

It was the greatest heist in history. The bankers pulled it off under everyone’s nose.

As the old punchline goes, Rudolph the Red knows a reign, dear.

Wall Street mocks unemployed Main Street

Following on from the last two posts, Equal opportunity destroyer and Bernanke: Rising stockmarket = economic growth are a couple of data points on the day:

US weekly jobless claims rise more than expected

U.S. initial jobless claims rose more than expected for the the week ended Oct. 30, matching the levels reached at the end of 2009.

And,

Jobless claims rise, but equities, metals shrug off losses

Commodities futures traders and brokers managed to shrug off a less-than-stellar jobless claims report on Wednesday morning, and both stock index futures and precious metals futures were looking bubbly.

For the week ending October 30, the advance seasonally adjusted unemployment claims figure rose 20,000 to 457,000, up from the previous week's revised figure of 437,000. That breaks a recent positive trend in the job market, where unemployment claims appeared to be falling - but with the Federal Reserve set to inject $600 billion into circulation by buying Treasury bonds, markets didn't appear to be bothered.

Jobless Claims up, Productivity Caps Inflation

New U.S. claims for jobless aid rose last week and a strong rebound in productivity in the third quarter showed employers wringing more output from current workers rather than hiring.

"The big picture is that firms are trying to squeeze every ounce out of the workers they have and this is one reason they feel no need to hire," said Cary Leahey, an economist at Decision Economics in New York.

Jobless Claims Cut Through the Noise

Lack of jobs is retarding consumer spending, helping to jeep housing the doldrums and creating great skepticism about the supposed recovery and the stock market.

The economy is in very weak shape; housing inventory equals eleven years of sales at their current pace and nine million mortgages are in default or in the process of foreclosure, about 28 years worth of inventory at the current pace of sales; the coming austerity in Europe and budget pull backs in the US guarantee a recession by mid year next year; corporate profits are going to hit a wall in 2011.

Traders, of course, are following a new mantra on Wall Street:

If economic data is bad, go long, the market will go up because Bernanke will keep the printing presses on. If economic data is strong, go long, the market will go up because corporate profits will be great in 2011.

Fed sparks world stocks buying binge

"What you achieve with quantitative easing is that you signal to investors not to buy U.S. government securities, take the money elsewhere, which in turn will weaken the dollar and spur economic growth," said Axel Merk, president and portfolio manager at Merk Investments in Palo Alto, California.

"The Fed in my view is trying to debase the dollar because printing all that money is not going to spur growth on its own. The risk is that the money doesn't stick and it doesn't go to where it's supposed to go," said Merk, who runs the company's $500 million currency mutual fund.

See, The Fed’s Big Gamble