Located in semi-rural Sonoma County in Northern California, this small town has fewer than 8000 residents. Fierce resistance from the community has met the Chase/CVS effort to develop a drive-through mall at the busiest intersection in town, as well as some support from the business community.

The City Council, Planning Commission, and Design Review Board (DRB) have all rejected their plans. One citizens group, Committee for Small Town Sebastopol, has sued on environmental grounds. Occupy Sebastopol organized a recent rally at its remaining large tent on the plaza and then a march to where Chase/CVS wants to relocate.

JPMorgan/Chase’s recent loss of over $3 billion in derivatives trading further threatens the powerful bank’s chances of having its development approved. The next DRB meeting on this development is May 30 and the City Council meets May 29. Activists plan to speak at both.

What if a bank had been convicted numerous times of predatory banking practices and a pharmacy had been convicted of failing to clean up its toxic wastes? Would you let that bank and pharmacy move downtown into the commons?  Or would you consider the potential harm to the community and reject the proposal on ethical and moral grounds? Would you insist that they stay on the outskirts of town? Or are their “private property rights” more important than the greater good of the community? These are questions that Sebastopol faces.

Chase and CVS have each paid billions of dollars in fines for their many illegal activities. Such violations are considered customary business expenses to such white-collar criminal elements of the ruling banking/pharmaceutical/attorney/bought-politicians complex.

By developing a vacant automobile dealer’s site at the busiest corner in town, they would increase traffic and draw more money from local citizens out of the county and into the hands of the global 1%. Occupy Sebastopol and various community groups, like GoLocal, claim that it is time to reverse globalization and trumpet re-localization.

The U.S. Justice Department recently launched a criminal investigation into JPMorgan/Chase’s trading loss of over $3 billion by continuing their casino capitalism gambling with derivatives. This practice is what initiated the current extreme economic downturn.

JPMorgan/Chase has about $2.5 trillion in total assets. That’s roughly 20% of the U.S. economy, according to MIT professor Simon Johnson, former chief economist of the International Monetary Fund. It “is too big to fail,” Johnson said in an interview with Bill Moyers called “Are JPMorgan’s Losses a Canary in a Coal Mine?”

Even the corporate media has raised questions about Chase CEO Jamie Dimon. The daily Press Democrat here, until recently owned by the New York Times, describes him as part of “Wall Street royalty.” The arrogant Dimon is experiencing “some poetic justice,” its editorial noted.

“How the mighty have fallen” captions a May 21 Newsweek photo of Dimon, linking him to Jon Corzine of MF Global and Kweku Adoboli of UBS. Which other members of the 1% may soon to fall?

Even after the announcement of the bank’s staggering losses, shareholders confirmed Dimon’s $24 million dollar annual pay package. He seems to have been rewarded for gambling big, even when he lost, noted an Occupy Santa Rosa activist.

“Huge banks have been using their enormous wealth for years to buy off politicians and regulators,” said Moyers. “Chase just had to pay almost three quarters of a billion dollars in settlements and surrendered fees to settle one case alone, that of bribery and corruption in Alabama. It’s also paid billions to settle other cases of perjury, forgery, fraud and sale of unregistered securities.”

Is that the kind of predatory operation one would want to anchor their lovely downtown where people gather? In addition to being private property, downtowns are part of the commons, constructed by taxpayers with plazas and other places to gather, celebrate, have fun, shop, and pass through without having their pockets picked by corporations.

CEO Dimon, by the way, happens to be on the board of the Federal Reserve Bank of New York, which is supposed to regulate banks. A conflict of interest?

“Some reports say that he (Dimon) meets with President Obama with some regularity. The political access and connections of Mr. Dimon are second to none,” Johnson reveals. This is why some in Occupy Wall Street consider Obama to be “the number one manager of the 1%.”

On ABC’s “The View” after the announcement of the stunning loss, Obama praised his friend as “one of the smartest bankers we got” and JPMorgan/Chase as “one of the best-managed banks there is.” Best managed for whom, other than its managers?

Dimon is close friends with Sandy Weill, Citigroup’s retired CEO, which already has a bank in downtown Sebastopol, as do Wells Fargo and Bank of America. How many big banks circulating money outside of the county does a small town need downtown?

In 2010 Weill bought a vineyard and huge house here in Sonoma County for $31 million dollars, thus joining this county’s 1%, which the wine industry anchors. He then gave $12 million dollars to Sonoma State University’s elite, expensive, fashionable Green Music Center, where the 1% can enjoy opera and symphonies, joined by a few others who can still afford it. With that he bought an honorary doctorate.

Dimon is described as being “like his mentor Weill, who ran Citigroup into derivative trading hell” by Robert Scheer, writing May 17 at Truthdig.com. “Dimon was in cahoots with his mentor, Sandy Weill, in engineering a series of mergers and acquisitions that would have violated the Glass-Seagall law,” Scheer continues, which made “the too-big-to-fail” banks legal.

SSU faculty, students, alumni, community members and activists from Occupy Petaluma, Occupy Santa Rosa, and Occupy Sebastopol engaged in a successful “Shame on SSU” direct action at the school’s May 12 graduation, where SSU rewarded Weill and his wife with honorable doctorates. The activists described them as “dishonorable” and turned their backs to shun them in a dignified action.

Their concerns include that other banksters and criminal corporate executives will retire, buy into the most lucrative wine industry in the U.S., and bring their predatory/polluting practices here. Sonoma County used to have a diverse agriculture industry; it is now a grape mono-culture. This threatens the county’s entire economy, due to wine’s boom-and-bust quality and the potentiality of a pest to destroy mono-crops.

Chase’s partner CVS is another globalized mega-corporation with a history of abuses.

“CVS must pay $13.75 million in civil penalties,” reports the April 26 weekly Sonoma West. This settlement recently was reached by 44 California district attorneys and city attorneys because CVS “violated California laws for safe storage, handling and disposal of sharps waste, pharmaceutical and pharmacy waste, photo waste containing silver, and hazardous waste generated from spills and customer return of hazardous products.”

This means that people and the environment have been hurt by the customary practices of CVS, which it can be expected to continue if allowed to move downtown into the commons.

“I researched CVS and after reading hundreds of pages of court documents and articles, decided to no longer shop there. CVS is merciless,” according to Sebastopol’s Eric Snyder in a letter to the weekly Sonoma West. It has been forced to pay hundreds of millions in fines. Its executives have been charged with bribery, conspiracy and fraud. CVS paid $75 million, the largest penalty ever paid under the Controlled Substances Act, in 2010. Other locals also already boycott CVS.

Big businesses like Chase and CVS threaten local businesses. Sonoma West published a May 17 commentary by Sebastopol resident Bill Shortridge that detailed the losses to local stores such as Sebastopol Hardware and Art & Soul. Such stores build rather than scatter community. When locals go there they converse with each other and create relationships. This is unlikely in the colder, corporate, industrial places that Chase and CVS build.

Many families have had their homes foreclosed as a result of Chase’s immoral practices. Others have lost their jobs because of the common practices of the giant financial operations. The faulty clean-up practices of CVS can lead to disease and even deaths. The practices of these two corporations have worsened and destroyed many lives.

“Let’s ban chain stores downtown and promote incentives so local businesses can flourish,” Shortridge concludes. Other Sonoma County and North Bay cities have such bans.

Sebastopol’s downtown is at risk of profiteering and polluting by the country’s largest bank and one of its largest pharmacies. Fortunately, credit unions have recently located in Sebastopol, since the successful move your money campaign to take money out of big banks and deposit it in local banks.

At nearly 70 years old, this reporter is old enough to remember Mom and Pop drug stores that anchored downtowns. We would come to the soda fountains and socialize. May our re-localization efforts restore such corner drug stores as places to gather and meet friends.

You will not be able to plug in, turn on and cop out.
You will not be able to skip out for beer during commercials,
Because the revolution will not be televised …
The revolution will be live.

— From the 1970 hit song by Gil Scott-Heron

Last week, the city of Philadelphia’s school system announced that it expects to close 40 public schools next year, and 64 schools by 2017. The school district expects to lose 40% of its current enrollment, and thousands of experienced, qualified teachers.

But corporate media in other cities made no mention of these massive school closings – nor of those in Chicago, Atlanta, or New York City. Even in the Philadelphia media, the voices of the parents, students and teachers who will suffer were omitted from most accounts.

It’s all about balancing the budgets of cities that have lost revenues from the economic downturn. Supposedly, there is simply no money for the luxury of providing an education for the people.

Where will those children find an education? Where will the teachers find work?  Almost certainly in an explosion of private sector “charter schools,” where the quality of education – from the curriculum to books to the food served at lunch — will be sacrificed to the lowest bidder, and teachers’ salaries and benefits will be sacrificed to the profits of the new private owners, who will also eat up many millions of dollars of taxpayer subsidies.

Why does there always seem to be enough money for military expansion, prisons, bank bailouts and tax cuts for the wealthy, but not enough for education—or for jobs, housing, health care, or old age pensions?  These are not “welfare” but are part of the social contract for which we pay taxes and make social security payments.

In an article reprinted on Truthout on May 10th titled “Why Isn’t Closing 40 Philadelphia Public Schools National News?,” Bruce Dixon posed this answer:

The city has a lot of poor and black children. Our ruling classes don’t want to invest in educating these young people, preferring instead to track into lifetimes of insecure, low-wage labor and/or prison. Our elites don’t need a populace educated in critical thinking. So low-cost holding tanks that deliver standardized lessons and tests, via computer if possible, operated by profit-making “educational entrepreneurs” are the way to go.

Lifetimes of insecure, low-wage labor or prison”—this is very close to the “indentured servitude” that was abolished along with slavery by the 13^th Amendment to the Constitution, ratified in 1865.  The freed slaves are being recaptured by debt, beginning with the debt of school loans, followed by credit card debt, mortgage debt, and health care costs.

As was cynically observed in a document called the Hazard Circular, allegedly circulated by British banking interests among their American banking counterparts in July 1862:

[S]lavery is but the owning of labor and carries with it the care of the laborers, while the European plan, led by England, is that capital shall control labor by controlling wages. This can be done by controlling the money. The great debt that capitalists will see to it is made out of the war, must be used as a means to control the volume of money. . . . It will not do to allow the greenback, as it is called, to circulate as money any length of time, as we cannot control that.  [Quoted in Charles Lindburgh, Banking and Currency and the Money Trust, (Washington D.C.: National Capital Press, 1913), page 102.]

The quotation may be apocryphal, but it graphically conveys the fate of our burgeoning indentured class.  It also suggests the way out: we must recapture the control of our money and banking systems, including the issuance of debt-free money (“greenbacks”) by the government.

Meanwhile, in Other Unreported News . . .

That alternative vision was put before a conference in Philadelphia in late April that drew delegates from all over the United States.  The theme of the first Public Banking in America conference, held at the Quaker Friends Center on April 28-29, was that to fix the economy, we first need to take back the “money power”—the power to create currency and credit.

Led by keynote speakers Gar Alperovitz and Hazel Henderson and highlighted in an electric speech by twelve-year-old Victoria Grant, the conference was all about solutions.  As summarized by OpEdNews editor Josh Mitteldorf:

There were two visions expressed . . . . The first is the very practical idea that states and cities around America could be rescued from insolvency if they had their own banks, instead of relying on commercial banks to borrow money through bonds. Tax-exempt bond issues supply money to states and municipal governments typically at 5 or 6% interest, while banks these days are able to borrow from the Fed at 1/4% per year.

The second vision is . . . the radically-subversive idea that the system we have for introducing money into the economy is a boon for the banks, but perhaps a major drag on our economy. Perhaps a simple, direct system of money creation by the Treasury Dept instead of the Fed would put an end to cycles of recession, and create a foundation for long-term prosperity.

Banking is a huge leech on our economy. 40% of every dollar we spend on goods and services — 40% of all that we create and all we consume — is siphoned off the top as bank interest in one form or another. (Calculations of Margrit Kennedy). The US Government is in the absurd position of paying interest to a private bank for every dollar that is put into circulation. The Federal Reserve system has privatized the power to create money, which, according to the Constitution, ought to belong to Congress alone. Presently, interest on the national debt costs the Federal government $500 billion in 2011, and (because of structural deficit spending) it is the fastest-growing portion of the Federal budget.

Five hundred billion dollars could be saved annually just by refinancing the federal debt through our own central bank, interest-free.  This is not an off-the-wall idea but has actually been done, very successfully.  Among other instances, it was done in Canada from 1939 to 1974, as was detailed by the youngest and oldest speakers at the conference, 12-year-old Victoria Grant and former defense minister Paul Hellyer, founder of the Canadian Action Party.  Another Canadian at the conference, Toronto Councilor Kristyn Wong-Tam, has proposed that the Toronto city council could improve its finances by forming its own bank.

The direct solution to the economic crisis, urged by veteran money reformer Bill Still, would be for the federal government to simply create the money it needs, as the American colonists did by printing paper scrip and Abraham Lincoln did by printing greenbacks.

But cities and states don’t need to wait for a deadlocked federal Congress to act.  As Wong-Tam has proposed for Toronto, they can divest their public revenues from the too-big-to-fail banks and put them in their own publicly-owned banks.  These banks could then do what all banks do: leverage capital, backed by deposits, into money in the form of bank credit.

This newly-created bank money would then be available for the use of the local government interest-free (since the government would own the bank and would get the interest back as dividends).  Among other possibilities, the money could be used to restore the schools.  This would not be an expenditure but an investment, as illustrated by the G.I. Bill, which provided education and low-interest loans for returning servicemen after World War II.  Economists have determined that for every 1944 dollar invested in the G.I. Bill, the country received approximately $7 in return, through increased economic productivity, consumer spending, and tax revenues.

Legislation for public banks has now been introduced in 18 U.S. states, on the model of the highly successful Bank of North Dakota (BND).  Elaborated on at the Public Banking conference by Ed Sather and Rozanne Junker, the BND is currently the country’s only state-owned bank and has been a major factor in allowing the state to escape the recent credit crisis.  North Dakota is the only state to boast a significant budget surplus every year since the economic downturn of 2008.

Ellen Brown noted that 40% of banks globally are also publicly-owned.  These are largely in the BRIC countries (Brazil, Russia, India, and China), which also escaped the credit crisis, largely because their public banks did not rely on derivatives and, unlike private banks, lent counter-cyclically to cushion their economies from the downturn.

Conference speaker Samuel Giles proposed that even public universities could set up their own banks, which could then leverage university monies for the university’s own use, rather than giving those assets away to Wall Street to be speculated with and lent back at much higher interest rates.

Innovative Solutions for Pennsylvania

Speakers Michael Sauvante and Mike Krauss noted that efforts are underway in several Pennsylvania and Ohio municipalities to create public banks.  One possibility is for public banks to take an aggressive role in ending the foreclosure crisis by acquiring abandoned and foreclosed homes by eminent domain.  These homes could be added to the asset base of the bank, which could extend credit to restore them and then sell or rent them at reasonable rates.

Krauss noted that Philadelphia already has a strong effort underway to create a “land bank”—a bank to acquire, rehabilitate and create productive uses for the city’s more than 40,000 vacant properties—and legislation (HB 1682) has been introduced in the state legislature to enable this effort.  But the land bank proposed is not designed to function as a depository bank that leverages funds into credit.  Rather, it would simply work with appropriated funds or bond revenue. This is a positive step toward addressing a real need, but it could be enhanced by turning the land bank into a public bank—a chartered bank having the power to create money as credit on its books.

The efforts for developing public banks in Pennsylvania are being led by the Pennsylvania Project, which was a co-sponsor of the Philadelphia conference and is supported in its work by the Public Banking Institute and the Center for State Innovation.  The Pennsylvania Project is creating partnerships with other Pennsylvania public policy organizations to introduce legislation for a state Bank of Pennsylvania in 2013, after elections are held and a strong foundation of support has been laid.

Revolution Without Bloodshed or War

We live under a tyranny today that is just as intolerable and unjust as that in 1776, but violent revolution is no longer an option.  Our oppressors own the military and the media, and their FEMA camps are waiting for us.

If change is to come, it must be peaceful and legal, beginning with a revolution in the minds and hearts of the people.  The message of the Public Banking in America Conference was that we can throw off the yoke of the financial elite by making money and credit a public utility; and the most feasible place to start is at the local level, with publicly-owned banks.

For videos of some of the speakers see here.  More to come.  The Victoria Grant video has gone viral, approaching half a million hits, including copies.

The book begins by describing the gift economy that has characterized all primitive cultures. Public gift giving was a major social ritual in all early societies. It was the primary mechanism early human communities employed to satisfy basic survival needs. As civilizations became more complex, gift exchange and barter were impractical over long distances. Therefore, money was introduced as a common medium of exchange. By tracing the western conception of money back to its earliest origins in ancient Greece, Eisenstein makes a strong case that the money system itself is responsible for rapacious growth and resource depletion, greed and the demise of community.

The Illusion of Scarcity

An early artifact of the introduction of money is the mistaken belief that the basic necessities of life are in short supply. This illusion underpins all western economic theory. In fact, many textbooks define economics as the study of human behavior under conditions of scarcity. As Eisenstein points out, this is a ludicrous notion in a world in which vast quantities of food, energy and raw materials go to waste. He links the illusion of scarcity to the illusion of the “discrete and separate self.” This, in turn, stems from the concept of personal wealth and the privatization of communally owned land. Prior to Roman times, land, like air and water, was considered part of the commons and couldn’t be owned. Under Roman tradition, there was no way for an individual to legitimately take possession of common lands. Thus the Roman aristocracy must have seized it by force, just as the English stole the communally owned lands of Native Americans.

Debt, Commodification, and Perpetual Growth

Sacred Economics argues that what economists commonly refer to as growth is the expansion of scarcity into areas of life once characterized by abundance. Fresh water, which was once abundant, has become scarce following its transformation into a commodity we have to pay for.

The fractional reserve banking system, which allows bankers to create money out of thin air – through loan generation – accentuates the pressure to convert more and more of the commons into commodities. Because the debt and interest created is always greater than the money supply (current global debt is estimated at $75 trillion, in contrast to global wealth of $30 trillion), there is always constant pressure to produce more goods and services to repay it. This explains why there are always people willing to cut down the last forest and catch the last fish.

As natural resources, such as fossil fuels, minerals, forests, fish and water, are rapidly converted to commodities, a similar transformation occurs in the social, cultural and spiritual commons. Stuff that was free throughout all human history – stories, songs, images, ideas, clever sayings – are copyrighted or trademarked to enable them to be bought and sold.

According to Eisenstein, the main reason for the world’s current financial crisis is that we continue to face mountains of increasing debt – yet have run out natural, cultural, social and spiritual capital we can convert to money to repay it.

The Case for Negative Interest Money

Eisenstein argues that capitalism, like the monetary system, has ceased to serve the interests of the vast majority of humankind. However, he disagrees with a “Marxist” solution, in which capitalist infrastructure is totally dismantled. He believes major economic change can occur through gradual evolution. In addition to advocating for relocalization of economic and political power away from central government – to cities, states and regions – he also supports the creation of local “negative interest” currencies, first introduced during the Great Depression in Germany, Austria and Switzerland.

Negative interest money was first proposed by Delvio Gisell in 1906 in his book Natural Economic Order. Gisell called it “free money” because it allowed people to exchange goods and services without paying interest to the owners of money (banks) for the right to do so. A negative interest system involves “demurrage” or natural decay in the value of money. If you know that a $100 bill will only be worth $90 in a year’s time, you have a powerful incentive to exchange it for goods and services.

In the 1920s, a negative interest currency called the Wana circulated in Germany. Towns that used the Wana had plenty of money for business expansion, workers’ salaries and public infrastructure and services – in contrast to towns that relied on the Deutschmark which, owing to deflation, was in extremely short supply. Austrian and Swiss communities introduced negative interest currencies (the Worgle and the WIR) in 1932. Owing to the threat these alternative currencies posed to banks and wealthy elites, the German and Austrian governments banned the Wana and the Worgle in 1932-33. The WIR is still in circulation in Switzerland but no longer operates as a negative interest currency. During the post-World War II boom, the demurrage was eliminated to prevent the Swiss economy from overheating.

In the US more than 100 cities were preparing to launch demurrage currencies – to stimulate local communities ravaged by the Great Depression – when Roosevelt came to power in 1932. Roosevelt, who recognized the enormous threat this posed to central government, banned all “emergency currencies” by executive decree (as Thaddeus Russell writes in A Renegade History of the United States, Roosevelt set the dangerous and unconstitutional precedent of circumventing Congress to enact laws by executive order).

The main advantages of negative interest currency are:

1. Money ceases to be scarce. As it becomes easier for small businesses to access money, jobs are created and people resume purchasing goods and services. Because the new currency is commons-based (see below), higher prices for ecologically harmful products serve as a brake their production.
2. The ready availability of money eliminates the fear of never having enough, reducing greed to acquire more, one of the main causes of income inequality.
3. Debts become easier to repay. People only pay back the original loan, without the compound interest.
4. There ceases to be any incentive for corporations to convert natural resources to profit, as cash profits rapidly decline in value.
5. Banks have more incentive to fund ecologically and socially beneficial projects with a low rate of return. They lose less by lending negative interest money than by allowing it to accumulate.
6. As money loses its value and importance, there is gradual resurrection of both the gift economy and the commons, in which people work for a “social dividend” in the form of public recognition. Eisenstein sees this process already beginning with the thousands of volunteers who donate their time to create and upgrade Open Source software, Wikipedia and books, films, songs and blogs they share freely as part of the Creative Commons.

Using State Banks to Issue Negative Interest Currencies

Eisenstein can see great benefit in local, regional and state governments issuing negative interest currencies to stimulate local business development and job creation, just as the Wana, Worgle and WIR did during the Great Depression. He applauds Ellen Brown’s work in campaigning for publicly owned state banks. At present, seventeen states have introduced legislation to create publicly owned state banks, funded by interest free tax revenue rather than Wall Street. These publicly owned banks would be in an ideal position to issue local negative interest currencies.

How a Commons-Based Currency Would Work

Rather than backing them with gold or silver, Eisenstein proposes that demurrage currencies work like bearer bonds and be redeemable for the right to “deplete the commons.” Businesses could exchange them, in other words, for the right to create an agreed amount of pollution or to deplete an agreed amount of a natural resource. Because these pollution/resource depletion quotas would be extremely expensive, corporations would be forced to internalize” (i.e. absorb the cost) of environmentally harmful production, rather than “externalizing” it (i.e. making the public pay) as they do currently.

New Zealand economist Deirdre Kent has proposed using land to back locally created negative interest currency. Under her proposal, local government would issue negative interest vouchers as a “loan” to prospective home buyers. The vouchers could be used to repay these “loans,” pay property taxes (known as “rates” in British commonwealth countries) or purchase goods and services from local businesses. This would offer new home buyers a far cheaper alternative than a bank mortgage, as well as discouraging property speculation, stimulating local business and producing additional revenue for local government.

The new documents, which PCJF National Director Mara Verheyden-Hilliard insists “are likely only a subset of responsive materials,” in the possession of federal law enforcement agencies, only “scratch the surface of a mass intelligence network including Fusion Centers, saturated with ‘anti-terrorism’ funding, that mobilizes thousands of local and federal officers and agents to investigate and monitor the social justice movement.”

Nonetheless, blacked-out and limited though they are, she says they offer clues to the extent of the government’s concern about and focus on the wave of occupations that spread across the country beginning with last September’s Occupy Wall Street action in New York City.

The latest documents reveal “intense involvement” by the DHS’s so-called National Operations Center (NOC). In its own literature, the DHS describes the NOC as “the primary national-level hub for domestic situational awareness, common operational picture, information fusion, information sharing, communications, and coordination pertaining to the prevention of terrorist attacks and domestic incident management.”

The DHS says that the NOC is “the primary conduit for the White House Situation Room” and that it also “facilitates information sharing and operational coordination with other federal, state, local, tribal, non-governmental operation centers and the private sector.”

A better description for a fascist police state network could not be written.

Remember, this sprawling yet centralized operation — what Verheyden-Hilliard describes as “a vast, tentacled, national intelligence and domestic spying network that the U.S. government operates against its own people” — was in this case deployed not against some terrorist organization or even mob or drug cartel, but rather against a loose-knit band of protesters, all conscientiously and publicly committed to nonviolence, who were exercising their Constitutionally-protected right to gather in public places and to speak out against the crimes and abuses of the corporate elite and the politicians who are bought and paid by that elite.

Among the documents obtained by the PCJF in this second batch of responses to its FOIA filing is one Nov. 5, 2011 from the NOC Fusion Center Desk, which collects at the federal level and then distributes the names and contact information of a group of Occupy protesters who were arrested during a demonstration in Dallas, TX against Bank of America, one of the nation’s biggest predatory lenders. Although none of the seven arrested were charged with any serious crime (six were charged with “using the sidewalk!”), their names and contact information were widely disseminated by the DHS.

Fusion Centers, a post-9-11 creation, are a federally-funded joint project of the DHS and the US Justice Department which are designed to share intelligence information among such federal agencies as the DHS, the FBI, the CIA and the US Military, as well as state and local police agencies. By their nature they are designed to circumvent legal constraints on various agencies, for example the ban on CIA domestic spying, or the Posse Comitatus Act, which bars active military activity within the borders of the US. There are currently 72 Fusion Centers around the US.

Another group of documents shows that on November 9, two days after a demonstration by 1000 Occupy activists in Chicago protesting social service cuts in that city, the NOC Fusion Desk relayed a request from Chicago Police asking other local police agencies what kind of tactics they were using against Occupy activists. They specifically requested that information be sought from police departments in New York, Oakland, Atlanta, Washington, D.C. Denver, Boston, Portland OR, and Seattle — all the scene of major Occupation actions and of violent police repression. Realizing that it would look bad if it assisted in such coordination overtly, higher officials in the DHS ordered the recall of the request but then simply rerouted it through “law enforcement channels,” where presumably it would be harder for anyone to spot a federal role in the coordination of local police responses. In response to that order, the documents show that the duty director of the NOC wrote that he would “reach out” to “LEO LNOs (liaison officer) on the floor” to assist. Verheyden-Hilliard explains that LEO is FBI’s nationally integrated law enforcement, intelligence and military network.

On December 12, when Occupy planned anti-war protests at various US ports, Verheyden-Hilliard says the new documents show that the NOC “went into high gear” seeking information from local field offices of the Department of Homeland Security about what actions police in Houston, Portland, Oakland, Seattle, San Diego, and Los Angeles planned to deal with Occupy movement actions.

Another document shows that earlier, in advance of a planned Occupy action at the Oakland, CA port facility on Nov. 2, DHS “went so far as to keep the Pentagon’s Northcom (Northern Command) in the intelligence loop.”

Given the subterfuge revealed in these documents that went into trying to create the illusion that the DHS was and is not coordinating a national campaign of spying, disruption and repression against Occupy activists, it is almost comical to find documents that show the DHS was in “direct communication with the White House” to obtain advance approval of public statements by DHS officials denying any DHS involvement in anti-Occupy actions.

These documents show that both DHS and one of that department’s police arms, the Federal Protective Service (FPS) were in direct contact with Portland, Oregon’s police chief and mayor, discussing how to deal with protesters who were in part on federal property. The coordination between the feds and the local police and political authorities were intense. Yet the approved statement sent to DHS from the White House read:

Any decisions on how to handle specifics (sic) situations are dealt with by local authorities in that location. If a protest area is located on Federal property and has been deemed unsanitary or unsafe by the General Services Administration (GSA) or city officials, and they make a decision to evacuate participants — the Federal Protective Service (FPS) will work with those officials to develop a plan to ensure the security and safety of everyone involved.

There was, comically, also a White House-approved DHS “background” statement, too! (Typically background statements by federal officials are supposed to be used when they want to tell a journalist the true situation but don’t want to have that statement attributed to them or their department. Having it pre-approved by the White House defeats that purpose and is simply a manipulation of the media.)

The faux “background” information included the following–a flat-out lie:

DHS is not actively coordinating with local law enforcement agencies and/or city governments concerning the evictions of Occupy encampments writ large.

Tellingly, the documents also include a Dec. 5 copy of the Weekly Informant, an intelligence report published by the DHS’s Office for State and Local Law Enforcement. The issue includes an update from the Police Executive Research Forum (PERF) concerning the activities of the Occupy Movement. PERF, Verheyden-Hilliard notes, is the group that the federal government claims organized a series of multi-city law enforcement calls to coordinate the police response to Occupy, which led immediately to the wave of violent crackdowns. It was at those meetings that police were advised among other things to act at night, to use aggressive tactics and weapons like tasers and pepper spray, and to take steps to remove journalists and cameras from the scene of crackdowns.

The overall sense from these latest documents is that Washington and the DHS, along with the FBI, was the nexus of the crackdown, orchestrating it, encouraging it, and attempting to cover its tracks.

The documents among other things expose the massive hypocrisy of the Obama administration and the Democratic Party, which this election year have tried to co-opt and claim as their own the anti-fat-cat theme of the “We are the 99%”-chanting Occupiers, while actually acting in the interest of Bank of America and its fellow financial sector mega-firms in trying to crush the movement itself.

To see all the new FOIA documents, go to the PJIF website.

The Social Security program…represents our commitment as a society to the belief that workers should not live in dread that a disability, death, or old age could leave them or their families destitute.

— President Jimmy Carter, December 20, 1977

[This law] assures the elderly that America will always keep the promises made in troubled times a half century ago…[The Social Security Amendments of 1983 are] a monument to the spirit of compassion and commitment that unites us as a people.

— President Ronald Reagan, April 20, 1983

So said Presidents Carter and Reagan, but that was before 1996, when Congress voted to allow federal agencies to offset portions of Social Security payments to collect debts owed to those agencies. (31 U.S.C. §3716).  Now we read of horror stories like this:

I’m a 68 year old grandma of 2 young grandchildren. I went to college to upgrade my employment status in 1998 or 1999. I finished in 2000 and at that time had a student loan balance of about 3500.00.

Could not find a job and had to request forbearance to carry me. Over the years I forgot about the loan, dealt with poor health, had brain surgery in 2006 and the collection agents decided to collect for the loan in 2008.

At no time during the 6-7 year gap did anyone remind me or let me know that I could make a minimum payment on the loan. Now that I am on Social Security (have been since I was 62), they have decided to garnishee my SS check to the tune of 15%.

I have not been employed since 2004 and have the two dependents ….  I don’t dispute that I owed them the $3500.00 but am wondering why they let it build up to somewhere around $17,000/20,000 before they attempted to collect.

Her debt went from $3500 to over $17,000 in 10 years?!  How could that be?

It seems that Congress has removed nearly every consumer protection from student loans, including not only standard bankruptcy protections, statutes of limitations, and truth in lending requirements, but protection from usury (excessive interest).  Lenders can vary the interest rates, and some borrowers are reporting rates as high as 18-20%.  At 20%, debt doubles in just 3-1/2 years; and in 7 years, it quadruples.  Congress has also given lenders draconian collection powers to extort not just the original principal and interest on student loans but huge sums in penalties, fees, and collection costs.

The majority of these debts are being imposed on young people, who have a potential 40 years of gainful employment ahead of them to pay the debt off.  But a sizeable chunk of U.S. student loan debt is held by senior citizens, many of whom are not only unemployed but unemployable.  According to the New York Federal Reserve, two million U.S. seniors age 60 and over have student loan debt, on which they owe a collective $36.5 billion; and 11.2 percent of this debt is in default.  Almost a third of all student loan debt is held by people aged 40 and over, and 4.2% is held by people over the age of 60.  The total student debt is now over $1 trillion, more even than credit card debt.  The sum is unsustainable and threatens to be the next debt tsunami.

Some of this debt is for loans taken out years earlier on their own schooling, and some is from co-signing student loans for children or grandchildren.  But much of it has been incurred by middle-aged people going back to school in the hope of finding employment in a bad job market.  What they have wound up with is something much worse: no job, an exponentially mounting debt that cannot be discharged in bankruptcy, and the prospect of old age without a social security check adequate to survive on.

Gone is the promise of earlier presidents of a “commitment to the belief that workers should not live in dread that a disability, death, or old age could leave them or their families destitute.”  The plight of the indebted elderly is reminiscent of the Irish immigrants who came to America after a potato famine in the 19th century, who were looked upon in some places as actually lower than slaves. Plantation owners kept their slaves fed, clothed and cared for, because they were valuable property.  The Irish were expendable, and they were on their own.

It is obviously not a good time to raise interest rates on student debt, but they are set to double on July 1, 2012, to 6.8%.  Many lawmakers in both parties agree that the current 3.4% rates should be extended for another year, but they can’t agree on how to find the $6 billion that this would cost. Republicans want to take the money from a health care fund that promotes preventive care; Democrats want to eliminate some tax benefits for small business owners.

Congress cannot agree on $6 billion to save the students, yet they managed to agree in a matter of days in September 2008 to come up with $700 billion to save the banks; and the Federal Reserve found many trillions more.  Estimates are that tuition could be provided free to students for a mere $30 billion annually.  The government has the power to find $30 billion — or $300 billion or $3 trillion — in the same place the Federal Reserve found it: it can simply issue the money.

Congress is empowered by the Constitution to “coin money” and “regulate the value thereof,” and no limit is set on the face amount of the coins it creates. It could issue a few one-billion dollar coins, deposit them in an account, and start writing checks.

But wouldn’t that be inflationary?  No.  The Fed’s own figures show that the money supply (M3) has shrunk by $3 trillion since 2008. That sum could be added back into the economy without inflating prices.  Gas and food are going up today, but the whole range of prices must be considered in order to determine whether price inflation is occurring.  Housing and wages are significantly larger components of the price structure than commodities, and they remain severely depressed.

There is another way the government could find needed funds without raising taxes, slashing services, or going further into debt: Congress could re-finance the federal debt through the Federal Reserve, interest-free.  Canada did this from 1939 to 1974, keeping its national debt low and sustainable while funding massive programs including seaways, roadways, pensions, and national health care.  The national debt shot up only when the government switched from borrowing from its own central bank to borrowing from private lenders at interest.  The rationale was that borrowing bank-created money from the government’s own central bank inflated the money supply, while borrowing existing funds from private banks did not.  But even the Federal Reserve acknowledges that private banks create the money they lend on their books, just as central banks do.

U.S. taxpayers now pay nearly half a trillion dollars annually to finance our federal debt.  The cumulative figure comes to $8.2 trillion paid in interest just in the last 24 years.  By financing the debt itself rather than paying interest to private parties, the government could divert what it would have paid in interest into tuition, jobs, infrastructure and social services, allowing us to keep the social contract while at the same time stimulating the economy.

For students, at the very least the bankruptcy option needs to be reinstated, usury laws restored, predatory practices eliminated, and the cost of education brought back down to earth.  One possibility for relieving the burden on students would be to give them interest-free loans.  The government of New  Zealand now offers 0% loans to New Zealand students, with repayment to be made from their income after they graduate.  For the past twenty years, the Australian government has also successfully funded students by giving out what are in effect interest-free loans.  The loans in the Australian Higher Education Loan Programme (or HELP) do not bear interest, but the government gets back more than it lends, because the principal is indexed to the Consumer Price Index (CPI), which goes up every year.

Predatory lenders are keeping us in debt peonage through misguided economics and bank-captured legislators.  We have people who desperately want to work, to the point of going back to school to try to improve their chances; and we have mountains of work that needs to be done.  The only thing keeping them apart is that artificial constraint called “money”, which we have allowed to be created by banks and let out at interest when it could have been created by public institutions for public purposes, either by direct issuance or through publicly-owned banks.  We just need to recognize our oppressors and throw off their yoke, and the good times can roll again.

I take to the streets and go to rallies but maybe I should go to parliament to blow my brains out.

– Dimitris Christoulas to a friend, Business Insider, Apr 5, 2012

The cornered tend to be desperate. The insecure can lose their bearings. The Greek financial crisis is producing an assortment of warring metaphors, some more plausible than others. The common target in this whole business is Germany, implying that more than just the eurozone may be under threat. It suggests, in fact, that financial instability will, in time, lead to a nationalist critique of the European idea.

As with broader conflicts, the national is explained through the local. Global events can be seen through individual lenses, the stories of citizens who have suffered, even if those stories can unduly simplify the complex. In Greece, Dimitris Christoulas has offered the premise for the Greek protest movement. The 77-year-old retired pharmacist shot himself on Syntagma Square in Athens early last month leaving behind a poignant and powerful note. In that note, he claimed that he would ‘rather die than scavenge in rubbish bins for his food’ (Guardian, Apr 5).

Christoulas’s suicide has been labelled as the first ‘act of resistance’ akin to the revolutionary actions of Mohammed Bouazizi, the Tunisian fruit and veg vendor whose act of self-conflagration in December 2010 set the Arab Spring in motion. But what was he resisting against? Unemployment levels in Greece stand at 21 percent and GDP has shrunk. The country is now in its fifth straight year of economic contraction. Soup kitchens in Athens are full with one in every eleven residents making regular trips. A bartering economy is starting to thrive.

The country’s suicide rate has climbed dramatically. From being one of Europe’s lowest, it has officially doubled. An elderly woman, wanting to alleviate the burden on her children, set herself on fire. Such cases make the political ground rich for disaffection, an all too prominent feature in the electoral rhetoric prior to last week’s ballot. Alexis Tsipras of the Syriza party has made gains on the platform of attacking those ‘loan sharks’ who have appropriated Greek sovereignty, promising an annulment of the bailout package. Those loan sharks are, of course, German, giving outsiders the sense that Teutonic bank managers will don their jackboots and march through Athens. The German role behind the bailout has even been deemed to be an imposition of an ‘economic Fourth Reich’ by the nationalist party, the Independent Greeks.

The suicide note by Christoulas also drew on history as a weapon. The government of Lucas Papademos, he suggested, was effectively collaborating with external forces the way Georgios Tsolakoglou did with Nazi Germany during the Second World War.

Even if Christoulas was drawing a very long bow, the problem of sovereignty is certainly critical. The leaders of the New Resistance movement led by Mikos Theodorakis have been enthusiastic and exaggerating in their praise of the Syriza leader. ‘I support with all my strength Alexis Tsipras in his efforts to form a government that will terminate the memorandum and will seek to recover the sovereignty of our country.’

Many would prefer a state of unchanged, moneyed comforts – pensions that are unreduced in perpetuity; a retirement age in the late 40s that enables a good deal of the rest of life to be enjoyed. But the tragedy of the money economy is that the hard means of supporting such lifestyles requires a base, preferably not on quicksand. When that base is crumbling, the rest will follow suit. Bad governance produces discontented, even revolutionary citizens. Internal disaffection encourages an often fruitless search for external excuses.

In a sense, there is a true ‘occupation’ – an economic one ruled by a cadre of technocrats. The banksters are in indirect command, dictating the programs of several countries in Europe where the finances have been shown to be poor. Sovereignty has become subservient to repayment, conditional on financial assistance. A vicious cycle has come into play: the banks have been responsible for lending to those who cannot pay. The books have been cooked; the credentials of those receiving borrowing exaggerated. The result is pure, inconsolable misery. The blame, as ever, is easily levelled against states whose better finances are seen as a means of bullying rather than an issue of praise. German Chancellor Angela Merkel becomes less a sound economic manager than a cruel stifler of independence.

As with any complex, undermining event, several factors feature. Either the political forces are deemed complicit with external forces (notably the Germans), and are accused of collaborators as a shorthand reference; or they are complicit in accepting the entire list of expectations dictated to by Brussels. The true impoverishment that has taken place in Greece is its political promise. The people, as they always have done, will survive in spite of their efforts.

In September 2008, Henry Paulson, former CEO of Goldman Sachs, managed to extort a $700 billion bank bailout from Congress.  But to pull it off, he had to fall on his knees and threaten the collapse of the entire global financial system and the imposition of martial law; and the bailout was a one-time affair.  Paulson’s plea for a permanent bailout fund—the Troubled Asset Relief Program or TARP—was opposed by Congress and ultimately rejected.

By December 2011, European Central Bank president Mario Draghi, former vice president of Goldman Sachs Europe, was able to approve a 500 billion Euro bailout for European banks without asking anyone’s permission.  And in January 2012, a permanent rescue funding program called the European Stability Mechanism (ESM) was passed in the dead of night with barely even a mention in the press.  The ESM imposes an open-ended debt on EU member governments, putting taxpayers  on the hook for whatever the ESM’s Eurocrat overseers demand.

The bankers’ coup has triumphed in Europe seemingly without a fight.  The ESM is cheered by Eurozone governments, their creditors, and “the market” alike, because it means investors will keep buying sovereign debt.  All is sacrificed to the demands of the creditors because where else can the money be had to float the crippling debts of the Eurozone governments?

There is another alternative to debt slavery to the banks.  But first, a closer look at the nefarious underbelly of the ESM and Goldman’s silent takeover of the ECB . . . .

The Dark Side of the ESM

The ESM is a permanent rescue facility slated to replace the temporary European Financial Stability Facility and European Financial Stabilization Mechanism as soon as Member States representing 90% of the capital commitments have ratified it, something that is expected to happen in July 2012.  A December 2011 youtube video titled “The shocking truth of the pending EU collapse!”, originally posted in German, gives such a revealing look at the ESM that it is worth quoting here at length.  It states:

The EU is planning a new treaty called the European Stability Mechanism, or ESM:  a treaty of debt. . . . The authorized capital stock shall be 700 billion euros.  Question: why 700 billion?  [Probable answer: it simply mimicked the $700 billion the U.S. Congress bought into in 2008.] . . . .

[Article 9]: “. . . ESM Members hereby irrevocably and unconditionally undertake to pay on demand any capital call made on them . . . within seven days of receipt of such demand.”  . . . If the ESM needs money, we have seven days to pay. . . . But what does “irrevocably and unconditionally” mean?  What if we have a new parliament, one that does not want to transfer money to the ESM?  . . . .

[Article 10]: “The Board of Governors may decide to change the authorized capital and amend Article 8 . . . accordingly.”  Question:  . . . 700 billion is just the beginning?  The ESM can stock up the fund as much as it wants to, any time it wants to?  And we would then be required under Article 9 to irrevocably and unconditionally pay up?

[Article 27, lines 2-3]: “The ESM, its property, funding, and assets . . . shall enjoy immunity from every form of judicial process . . . .”  Question:  So the ESM program can sue us, but we can’t challenge it in court?

[Article 27, line 4]: “The property, funding and assets of the ESM shall . . . be immune from search, requisition, confiscation, expropriation, or any other form of seizure, taking or foreclosure by executive, judicial, administrative or legislative action.”  Question: . . . [T]his means that neither our governments, nor our legislatures, nor any of our democratic laws have any effect on the ESM organization?  That’s a pretty powerful treaty!

[Article 30]:  “Governors, alternate Governors, Directors, alternate Directors, the Managing Director and staff members shall be immune from legal process with respect to acts performed by them . . . and shall enjoy inviolability in respect of their official papers and documents.”   Question:  So anyone involved in the ESM is off the hook?  They can’t be held accountable for anything? . . . The treaty establishes a new intergovernmental organization to which we are required to transfer unlimited assets within seven days if it so requests, an organization that can sue us but is immune from all forms of prosecution and whose managers enjoy the same immunity.  There are no independent reviewers and no existing laws apply?  Governments cannot take action against it?  Europe’s national budgets in the hands of one single unelected intergovernmental organization?  Is that the future of Europe?  Is that the new EU – a Europe devoid of sovereign democracies?

The Goldman Squid Captures the EC

Last November, without fanfare and barely noticed in the press, former Goldman exec Mario Draghi replaced Jean-Claude Trichet as head of the ECB.  Draghi wasted no time doing for the banks what the ECB has refused to do for its member governments—lavish money on them at very cheap rates.  French blogger Simon Thorpe reports:

 On the 21st of December, the ECB “lent” 489 billion euros to European Banks at the extremely generous rate of just 1% over 3 years.  I say “lent”, but in reality, they just ran the printing presses. The ECB doesn’t have the money to lend. It’s Quantitative Easing again.

The money was gobbled up virtually instantaneously by a total of 523 banks. It’s complete madness. The ECB hopes that the banks will do something useful with it – like lending the money to the Greeks, who are currently paying 18% to the bond markets to get money. But there are absolutely no strings attached. If the banks decide to pay bonuses with the money, that’s fine. Or they might just shift all the money to tax havens.

At 18% interest, debt doubles in just four years.  It is this onerous interest burden, not the debt itself, that is crippling Greece and other debtor nations.  Thorpe proposes the obvious solution:

Why not lend the money to the Greek government directly? Or to the Portuguese government, currently having to borrow money at 11.9%? Or the Hungarian government, currently paying 8.53%. Or the Irish government, currently paying 8.51%? Or the Italian government, who are having to pay 7.06%?

The stock objection to that alternative is that Article 123 of the Lisbon Treaty prevents the ECB from lending to governments.  But Thorpe reasons:

My understanding is that Article 123 is there to prevent elected governments from abusing Central Banks by ordering them to print money to finance excessive spending. That, we are told, is why the ECB has to be independent from governments. OK. But what we have now is a million times worse. The ECB is now completely in the hands of the banking sector. “We want half a billion of really cheap money!!” they say.  OK, no problem. Mario is here to fix that. And no need to consult anyone. By the time the ECB makes the announcement, the money has already disappeared.

At least if the ECB was working under the supervision of elected governments, we would have some influence when we elect those governments. But the bunch that now has their grubby hands on the instruments of power are now totally out of control.

Goldman Sachs and the financial technocrats have taken over the European ship.  Democracy has gone out the window, all in the name of keeping the central bank independent from the “abuses” of government.  Yet the government is the people—or it should be.  A democratically elected government represents the people.  Europeans are being hoodwinked into relinquishing their cherished democracy to a rogue band of financial pirates, and the rest of the world is not far behind.

Rather than ratifying the draconian ESM treaty, Europeans would be better advised to reverse article 123 of the Lisbon treaty.  Then the ECB could issue credit directly to its member governments.  Alternatively, Eurozone governments could re-establish their economic sovereignty by reviving their publicly-owned central banks and using them to issue the credit of the nation for the benefit of the nation, effectively interest-free.  This is not a new idea but has been used historically to very good effect; e.g., in Australia through the Commonwealth Bank of Australia and in Canada through the Bank of Canada.

Today the issuance of money and credit has become the private right of vampire rentiers, who are using it to squeeze the lifeblood out of economies.  This right needs to be returned to sovereign governments.  Credit should be a public utility, dispensed and managed for the benefit of the people.

Financiers that break from the corruption of gluttonous greed can become the conscience of a sector that seems to have no conscience. Let’s hope their courage is contagious and others follow their lead.  We need a revolt from inside big finance that will help radically transform finance from greed to generosity, from gluttony to moderation and from selfishness to community benevolence.

A thorough examination of the corruption of big finance came in a recent shareholder letter from Robert Wilmers, the Chairman and CEO of M&T Bank. He laments that “it is difficult, for one who has spent more than a generation in the field, to recall a time when banking as a profession has been publicly held in such persistently low esteem” noting that polls show “only a quarter of the American public expressed confidence in the integrity of bankers.”  He recognizes that this is something big finance has brought on itself: “Since 2002, the six largest banks have been hit by at least 207 separate fines, sanctions or legal awards totaling $47.8 billion. None of these banks had fewer than 22 infractions; in fact, one had 39 across seven countries, on three different continents.

And, he highlights the salary disparity between bankers and other Americans reminding us that this is a recent development.  Just a few generations ago “the average compensation in the financial services industry was exactly the same as the average income of a non-farm U.S. worker.”  But today:

At a time when the American economy is stuck in the doldrums and so many are unemployed or under-employed, the average compensation for the chief executives of four of the six largest banks in 2010 was $17.3 million – more than 262 times that of the average American worker . . . it is hardly surprising that the public would judge the banking industry harshly – and view Wall Street’s executives and their intentions with skepticism.

How did the finance industry change into this corrupt mass?  Wilmers points to the repeal of Glass-Steagall, a law “prudently erected in the wake of the Depression, kept investment banks apart from traditional banks.”  When banks were credible members of the community they “saw public service as part of their obligation” and “played a clear, if limited, role in the economy: to gather savings and to finance industry and commerce. Trading and speculation were nowhere included.”

But, in the 1970s and 80s he describes banking moving away from investing in things they knew as they began investing in areas where they “possessed little knowledge.” This created high risks, so much so that a 1993 study conducted by the Federal Reserve Bank of Boston found that had “banks truly recognized all the losses inherent in their books in 1984, one major bank would have been insolvent and seven others dangerously close.”

Rather than reducing risk, they sought quick profit by creating “investments they did not understand – and, indeed it seems nobody really understood. In the process, they contorted the overall American economy.”  The repeal of the Glass-Steagall Act in 1999 married investment banks with traditional banks.  Rather than sound investment Wall Street bet on “increasingly opaque financial instruments, built on algorithms rather than underwriting.” This sowed “the seeds of crisis and embodied a broader change that, in important and unfortunate ways, continues today”

Wilmers describes a bigger, systemic problem, “not only bankers but their regulators, not only investors but those paid to advise them, not only private finance but its government-sponsored kin.” The result – “the decimation of public trust in once-respected institutions and their leaders.”  The economic collapse “was orchestrated by so many who should have, instead, been sounding the alarm.”

Unfortunately, “the Wall Street banks continue to fight against regulation that would limit their capacity to trade for their own accounts – while enjoying the backing of deposit insurance – and thus seek to keep in place a system which puts taxpayers at high risk. In 2011, the six largest banks spent $31.5 million on lobbying activities. All told, the six firms employed 234 registered lobbyists.”

Wilmers urges us “to distinguish between Wall Street banks who, in my view, were central to the financial crisis and continue to distort our economy, and Main Street banks who were often victims of the crisis.”  Many activists do see the difference between Wall Street and community banks and credit unions; and therefore, have engaged in the “move your money” campaign.

A second example of divisions in the banking sector comes from the Federal Reserve Board of Dallas which released a report from its chief researcher, Harvey Rosenblum , “Why We Must End Too Big To Fail Now,” cites statistics showing that the five largest U.S. banks hold 52% of all bank assets.  The report points out that “American workers and taxpayers want a broad-based recovery that restores confidence. . . The road back to prosperity will require reform of the financial sector. In particular, a new roadmap must find ways around the potential hazards posed by the financial institutions that the government not all that long ago deemed ‘too big to fail.’” In an introduction to the report, Dallas Fed President Richard W. Fisher calls for “downsizing” these megabanks because the continuing cloud of ‘too big to fail’ hanging over the economy is simply too costly.

Rosenblum, like Wilmers, sees that Americans have lost faith in capitalism as a result of Wall Street’s greed: “Diverse groups ranging from the Occupy Wall Street movement to the Tea Party argue that government-assisted bailouts of reckless financial institutions are sociologically and politically offensive. From an economic perspective, these bailouts are certainly harmful to the efficient workings of the market.” He blames the big banks for the lackluster “recovery” writing that the too-big-to-fail banks “remain a hindrance to full economic recovery.”

In the report, Rosenblaum states that the financial crisis arose because of “failures of the banking, regulatory and political systems.” But, he warns “focusing on faceless institutions glosses over the fundamental fact that human beings, with all their flaws, frailties and foibles, were behind the tumultuous events that few saw coming and that quickly spiraled out of control.”  As the regulatory and political systems failed, the rule of law was not enforced, when this occurs “incentives often turn perverse, and self-interest can turn malevolent. . . Greed led innovative legal minds to push the boundaries of financial integrity. . .”

Rosenblaum sees the too big to fail financial banks, not community banks, as the “primary reason” for the weak recovery: “Many of the biggest banks have sputtered . . . in contrast, the nation’s smaller banks are in somewhat better shape . . . most didn’t make big bets on mortgage-backed securities, derivatives and other highly risky assets whose value imploded.” He concludes: “an economy relatively free from financial crises—won’t be reached until we have the fortitude to break up the giant banks.”

The most highly publicized division among financiers was in mid-March when Goldman Sachs executive Greg Smith publicly resigned, with a pointed letter  in the New York Times.  The letter described a “toxic and destructive environment” in Goldman where the entire staff from senior partners to associates, pursued nothing but ever-more sophisticated means of “ripping their clients off.”  At the center of  Smith’s critique is the massive derivatives market, where he was a central player.

What may have been most interesting about the public resignation letter was so many commentators saying – ho hum, Goldman rips off its clients, big surprise.  Former Secretary of Labor Robert Reich broadened the discussion describing the history of Goldman rip-offs going back to the 1920s and broadening the rip-off mentality to all of Wall Street’s big banks, not just Goldman. Reich describes this as a problem of “endemic abuse of power and trust.”  This culture of corruption led to “the junk-bond and insider trading scandals of the 1980s, the dot-com scams of the late 1990s and early 2000s, the Wall-Street enablers of Enron and other corporate looters, and the wild excesses that led to the crash of 2008.”

What do these emerging cracks mean to people in the United States who want to see radical transformation of finance, democratization of the economy and a participatory democracy where people have real power?  It means, we are seeing the weakening of the pillars that hold the power structure in place – a critical step to people having the power to demand change.

Steve Chrismer, an engineer working with Occupy, describes this in engineering terms; how with the right frequency we can insert our fist, even our arm between rocks:

Did you know that it is possible to insert yourself between rocks that are vibrating at just the right frequency?  When looking for the optimum vibration frequency I increased the frequency by single digits from 0 Hz.  When resonance occurred the situation changed dramatically and as the rocks became ‘fluid’ I was able to insert my hand and then my whole arm into the rocks.  If you went slow enough the rocks flowed around you, not noticing your presence, and did not resist: go too recklessly fast and the rocks would resist.

This is where Occupy is as a movement: only 6 months old and we are already noticing the weakness of solid walls. To weaken the pillars of power requires that we study these cracks so that we can provide the needed energy to open them non-violently and allow us all to pass through.

Occupy needs to drive wedges through these cracks.  Protests of executive salaries, stopping foreclosures and evictions through Occupy Our Homes, highlighting the failure to loan to small businesses and the hiding of profits offshore to avoid paying taxes, pressuring banks for their investments in private prisons, dirty fuel, for-profit health care and other negative corporate interests need to escalate as we build pressure to break up the Too Big to Fail Banks.  At the same time, we need to build a new finance system which includes developing public banks at the state and city level and building community banks and credit unions by moving our money from the big banks.  Time banks that record volunteer time which is traded for unpaid labor at the community level will avoid the banking system altogether. Expanding the fissures by the combination of protest and building the new economy will result in a finance system that serves the public interest, not private gain.

No doubt many others inside big finance feel the same as those who have spoken out. The courage of the few may embolden more to expose the corrupt practices and unsafe risks that are being taken; and to speak about real solutions to the financial crisis. Up until now, those who see the corruption may have felt alone but now they know they are not, and they can join with others seeking to stop the exploitation of people and the planet.

The more we speak about the fraud and corruption of Wall Street, the more we will empower those in big finance who are questioning the current paradigm. The more we protest at banks and financial institutions, exposing the truth about unethical foreclosures, concentrated wealth and ties to industries that harm people and the planet. the more reasons those inside will have to change their behavior. Using creative conflict and nonviolent tactics, we can draw more people to the movement for social and economic justice and provide a safe place for them to speak the truth of much-needed transformation.

Last week in Ottawa, the Canadian House of Commons passed the federal government’s latest round of budget cuts and austerity measures.  Highlights included chopping 19,200 public sector jobs, cutting federal programs by $5.2 billion per year, and raising the retirement age for millions of Canadians from 65 to 67.  The justification for the cuts was a massive federal debt that is now over C$ 581 billion, or 84% of GDP.

An online budget game furnished by the local newspaper, the Globe and Mail, gave readers a chance to try to balance the budget themselves.  Possibilities included slashing transfer payments for elderly benefits, retirement programs, health benefits, and education; cutting funding for transportation, national defense, economic development and foreign aid; and raising taxes.  An article on the same page said, “The government, in reality, doesn’t have that many tools at its disposal to close a large budgetary deficit. It can either raise taxes or cut departmental program spending.”

It seems that no gamer, lawmaker or otherwise, was offered the opportunity to toy with the number one line item in the budget: interest to creditors.  A chart on the website of the Department of Finance Canada titled “Where Your Tax Dollar Goes” showed interest payments to be 15% of the budget—more than health care, social security, and other transfer payments combined.  The page was dated 2006 and was last updated in 2008, but the percentages are presumably little different today.

Penny Wise, Pound Foolish

Among other cuts in the 2012 budget, the government announced that it would be discontinuing the minting of Canadian pennies, which now cost more than a penny to make.  The government is focusing on the pennies and ignoring the pounds—the massive share of the debt that might be saved by borrowing from the government’s own Bank of Canada.

Between 1939 and 1974, the government actually did borrow from its own central bank.  That made its debt effectively interest-free, since the government owned the bank and got the benefit of the interest.  According to figures supplied by Jack Biddell, a former government accountant, the federal debt remained very low, relatively flat, and quite sustainable during those years.  (See his chart here.)  The government successfully funded major public projects simply on the credit of the nation, including the production of aircraft during and after World War II, education benefits for returning soldiers, family allowances, old age pensions, the Trans-Canada Highway, the St. Lawrence Seaway project, and universal health care for all Canadians.

The debt shot up only after 1974.  That was when the Basel Committee was established by the central-bank Governors of the Group of Ten countries of the Bank for International Settlements (BIS), which included Canada.   A key objective of the Committee was to maintain “monetary and financial stability.”  To achieve that goal, the Committee discouraged borrowing from a nation’s own central bank interest-free, and encouraged borrowing instead from private creditors, all in the name of “maintaining the stability of the currency.”

The presumption was that borrowing from a central bank with the power to create money on its books would inflate the money supply and prices.  Borrowing from private creditors, on the other hand, was considered not to be inflationary, since it involved the recycling of pre-existing money.  What the bankers did not reveal, although they had long known it themselves, was that private banks create the money they lend just as public banks do.  The difference is simply that a publicly-owned bank returns the interest to the government and the community, while a privately-owned bank siphons the interest into its capital account, to be re-invested at further interest, progressively drawing money out of the productive economy.

The debt curve that began its exponential rise in 1974 tilted toward the vertical in 1981, when interest rates were raised by the U.S. Federal Reserve to 20%.  At 20% compounded annually, debt doubles in under four years.  Canadian rates went as high as 22% during that period.  Canada has now paid over a trillion Canadian dollars in interest on its federal debt—nearly twice the debt itself.  If it had been borrowing from its own bank all along, it could be not only debt-free but sporting a hefty budget surplus today.  That is true for other countries as well.

The Bankers’ Silent Coup

Why are governments paying private financiers to generate credit they could be issuing themselves, interest-free?   According to Professor Carroll Quigley, Bill Clinton’s mentor at Georgetown University, it was all part of a concerted plan by a clique of international financiers.  He wrote in Tragedy and Hope in 1964:

The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations.

Each central bank . . . sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world.

In December 2011, this charge was echoed in a lawsuit filed in Canadian federal court by two Canadians and a Canadian economic think tank.  Constitutional lawyer Rocco Galati filed an action on behalf of William Krehm, Ann Emmett, and COMER (the Committee for Monetary and Economic Reform) to restore the use of the Bank of Canada to its original purpose, including making interest free loans to municipal, provincial and federal governments for “human capital” expenditures (education, health, and other social services) and for infrastructure.  The plaintiffs state that since 1974, the Bank of Canada and Canada’s monetary and financial policy have been dictated by private foreign banks and financial interests led by the BIS, the Financial Stability Forum (FSF) and the International Monetary Fund (IMF), bypassing the sovereign rule of Canada through its Parliament.

Today this silent coup has been so well obscured that governments and gamers alike are convinced that the only alternatives for addressing the debt crisis are to raise taxes, slash services, or sell off public assets.  We have forgotten that there is another option: cut the debt by borrowing from the government’s own bank, which returns its profits to public coffers.  Cutting out interest has been shown to reduce the average cost of public projects by about 40%.

Game over: we win.

Far from reducing risk, derivatives increase risk, often with catastrophic results.

— Derivatives expert Satyajit Das, Extreme Money (2011)

The “toxic culture of greed” on Wall Street was highlighted again last week, when Greg Smith went public with his resignation from Goldman Sachs in a scathing oped published in the New York Times.  In other recent eyebrow-raisers, LIBOR rates—the benchmark interest rates involved in interest rate swaps—were shown to be manipulated by the banks that would have to pay up; and the objectivity of the ISDA (International Swaps and Derivatives Association) was called into question, when a 50% haircut for creditors was not declared a “default” requiring counter-parties to pay on credit default swaps on Greek sovereign debt.

Interest rate swaps are less often in the news than credit default swaps, but they are far more important in terms of revenue, composing fully 82% of the derivatives trade.  In February, JP Morgan Chase revealed that it had cleared $1.4 billion in revenue on trading interest rate swaps in 2011, making them one of the bank’s biggest sources of profit.  According to the Bank for International Settlements:

[I]nterest rate swaps are the largest component of the global OTC derivative market.  The notional amount outstanding as of June 2009 in OTC interest rate swaps was $342 trillion, up from $310 trillion in Dec 2007.  The gross market value was $13.9 trillion in June 2009, up from $6.2 trillion in Dec 2007.

For more than a decade, banks and insurance companies convinced local governments, hospitals, universities and other non-profits that interest rate swaps would lower interest rates on bonds sold for public projects such as roads, bridges and schools.  The swaps were entered into to insure against a rise in interest rates; but instead, interest rates fell to historically low levels.  This was not a flood, earthquake, or other insurable risk due to environmental unknowns or “acts of God.”  It was a deliberate, manipulated move by the Fed, acting to save the banks from their own folly in precipitating the credit crisis of 2008.  The banks got in trouble, and the Federal Reserve and federal government rushed in to bail them out, rewarding them for their misdeeds at the expense of the taxpayers.

How the swaps were supposed to work was explained by Michael McDonald in a November 2010 Bloomberg article titled “Wall Street Collects $4 Billion From Taxpayers as Swaps Backfire”:

In an interest-rate swap, two parties exchange payments on an agreed-upon amount of principal. Most of the swaps Wall Street sold in the municipal market required borrowers to issue long-term securities with interest rates that changed every week or month. The borrowers would then exchange payments, leaving them paying a fixed-rate to a bank or insurance company and receiving a variable rate in return. Sometimes borrowers got lump sums for entering agreements.

Banks and borrowers were supposed to be paying equal rates: the fat years would balance out the lean.  But the Fed artificially manipulated the rates to save the banks.  After the credit crisis broke out, borrowers had to continue selling adjustable-rate securities at auction under the deals.  Auction interest rates soared when bond insurers’ ratings were downgraded because of subprime mortgage losses; but the periodic payments that banks made to borrowers as part of the swaps plunged, because they were linked to benchmarks such as Federal Reserve lending rates, which were slashed to almost zero.

In a February 2010 article titled “How Big Banks’ Interest-Rate Schemes Bankrupt States,” Mike Elk compared the swaps to payday loans.  They were bad deals, but municipal council members had no other way of getting the money.  He quoted economist Susan Ozawa of the New School:

The markets were pricing in serious falls in the prime interest rate. . . . So it would have been clear that this was not going to be a good deal over the life of the contracts. So the states and municipalities were entering into these long maturity swaps out of necessity. They were desperate, if not naive, and couldn’t look to the Federal Government or Congress and had to turn themselves over to the banks.

Elk wrote:

As almost all reasoned economists had predicted in the wake of a deepening recession, the federal government aggressively drove down interest rates to save the big banks. This created opportunity for banks – whose variable payments on the derivative deals were tied to interest rates set largely by the Federal Reserve and Government – to profit excessively at the expense of state and local governments. While banks are still collecting fixed rates of from 4 percent to 6 percent, they are now regularly paying state and local governments as little as a tenth of one percent on the outstanding bonds – with no end to the low rates in sight.

. . . [W]ith the fed lowering interest rates, which was anticipated, now states and local governments are paying about 50 times what the banks are paying. Talk about a windfall profit the banks are making off of the suffering of local economies.

To make matters worse, these state and local governments have no way of getting out of these deals. Banks are demanding that state and local governments pay tens or hundreds of millions of dollars in fees to exit these deals. In some cases, banks are forcing termination of the deals against the will of state and local governments, using obscure contract provisions written in the fine print.

By the end of 2010, according to Michael McDonald, borrowers had paid over $4 billion just to get out of the swap deals.  Among other disasters, he lists these:

California’s water resources department . . . spent $305 million unwinding interest-rate bets that backfired, handing over the money to banks led by New York-based Morgan Stanley. North Carolina paid $59.8 million in August, enough to cover the annual salaries of about 1,400 full-time state employees. Reading, Pennsylvania, which sought protection in the state’s fiscally distressed communities program, got caught on the wrong end of the deals, costing it $21 million, equal to more than a year’s worth of real-estate taxes.

In a March 15th article on Counterpunch titled “An Inside Glimpse Into the Nefarious Operations of Goldman Sachs: A Toxic System,” Darwin Bond-Graham adds these cases from California:

The most obvious example is the city of Oakland where a chronic budget crisis has led to the shuttering of schools and cuts to elder services, housing, and public safety. Oakland signed an interest rate swap with Goldman in 1997. . . .

Across the Bay, Goldman Sachs signed an interest rate swap agreement with the San Francisco International Airport in 2007 to hedge $143 million in debt. Today this agreement has a negative value to the Airport of about $22 million, even though its terms were much better than those Oakland agreed to.

Greg Smith wrote that at Goldman Sachs, the gullible bureaucrats on the other side of these deals were called “muppets.”  But even sophisticated players could have found themselves on the wrong side of this sort of manipulated bet.  Satyajit Das gives the example of Harvard University’s bad swap deals under the presidency of Larry Summers, who had fought against derivatives regulation as Treasury Secretary in 1999.  There could hardly be more sophisticated players than Summers and Harvard University.  But then who could have anticipated, when the Fed funds rate was at 5%, that the Fed would push it nearly to zero?  When the game is rigged, even the most experienced gamblers can lose their shirts.

Courts have dismissed complaints from aggrieved borrowers alleging securities fraud, ruling that interest-rate swaps are privately negotiated contracts, not securities; and “a deal is a deal.”  So says contract law, strictly construed; but municipal governments and the taxpayers supporting them clearly have a claim in equity.  The banks have made outrageous profits by capitalizing on their own misdeeds.  They have already been paid several times over: first with taxpayer bailout money; then with nearly free loans from the Fed; then with fees, penalties and exaggerated losses imposed on municipalities and other counterparties under the interest rate swaps themselves.

Bond-Graham writes:

The windfall of revenue accruing to JP Morgan, Goldman Sachs, and their peers from interest rate swap derivatives is due to nothing other than political decisions that have been made at the federal level to allow these deals to run their course, even while benchmark interest rates, influenced by the Federal Reserve’s rate setting, and determined by many of these same banks (the London Interbank Offered Rate, LIBOR) linger close to zero. These political decisions have determined that virtually all interest rate swaps between local and state governments and the largest banks have turned into perverse contracts whereby cities, counties, school districts, water agencies, airports, transit authorities, and hospitals pay millions yearly to the few elite banks that run the global financial system, for nothing meaningful in return.

Why are these swaps so popular, if they can be such a bad deal for borrowers?  Bond-Graham maintains that capitalism as it functions today is completely dependent upon derivatives.  We live in a global sea of variable interest rates, exchange rates, and default rates.  There is no stable ground on which to anchor the economic ship, so financial products for “hedging against risk” have been sold to governments and corporations as essentials of business and trade.  But this “financial engineering” is sold, not by disinterested third parties, but by the very sharks who stand to profit from their counterparties’ loss.  Fairness is thrown out in favor of gaming the system.  Deals tend to be rigged and contracts to be misleading.

How could local governments reduce their borrowing costs and insure against interest rate volatility without putting themselves at the mercy of this Wall Street culture of greed?  One possibility is for them to own some banks.  State and municipal governments could put their revenues in their own publicly-owned banks; leverage this money into credit as all banks are entitled to do; and use that credit either to fund their own projects or to buy municipal bonds at the market rate, hedging the interest rates on their own bonds.

The creation of credit has too long been delegated to a cadre of private middlemen who have flagrantly abused the privilege.  We can avoid the derivatives trap by cutting out the middlemen and creating our own credit, following the precedent of the Bank of North Dakota and many other public banks abroad.

It’s true, things did get a bit wild at Citi’s Financial Services conference at New York’s Waldorf Astoria when Brian Moynihan got on stage and began flipping through his tedious powerpoint.

While the hotel security was busy watching anti-bank protesters rallying outside, CODEPINK cofounder Jodie Evans, dressed in a hot pink bustier, burst into the conference room. “Bust up Bank of America before it busts up America”, she shouted, before being hauled out by security guards. “As I was saying,” continued a deadpan Moynihan to the laughter of the crowd, returning to the dreary slides that tried to put a rosy spin on this dinosaur of a company whose share price has plummeted while it continues to foreclose on families’ homes and faces tens of billions of dollars in damages from lawsuits over mortgage investments.

Little did Moynihan know that the excitement at what is normally a bankers’ snoozefest had just begun. CODEPINK co-director Rae Abileah and I were already seated in the front of the room. Wearing dark business suits, we did our best to blend into the crowd of stodgy white men in black business suits.

While Moynihan was bragging that Bank of America ended 2011 with the most capital, liquidity and reserves ever in its history, I calmly walked on stage and began to disrobe while Rae deftly jumped on a table in front of the stage. As we shed our jackets and shirts, the startled CEO suddenly found himself flanked by women in pink bras, with Bust up B of A scrawled on our chests.

Taking the mic away from Moynihan, I addressed the audience of bankers and institutional investors. “Today, March 8, is International Women’s Day, and on behalf of 99 percent of women in this country who are disgusted by the unbridled greed of the big banks, we say it’s time to Bust Up the Bank of America.” I kept talking about the bank’s misdeeds as security guards jumped on stage and dragged me into the hall. To my delight, I could hear Rae, who was left standing on the table in her pink bra, shouting over the boos of the audience. “Stop foreclosing on people’s homes; stop the predatory lending; stop funding dirty coal. Mr. Moynihan, how can you justify making millions while bankrupting America?” she asked, as the security guards dragged her away. Indeed, in 2011, while millions of Americans were jobless and homeless thanks to the bankers, Moynihan received over $6 million in compensation.

This protest was one of many taking place at Bank of America branches around the country on International Women’s Day. Organized by CODEPINK, Women Occupy and Occupy Wall Street, the protests were meant to highlight the effects of the financial crisis on women and the fact that, four years into this crisis, the same problems exist.

In the afternoon, those of us in New York moved on to protest at the Bank of America branch located across the street from famous Zuccotti Park. While protesters gathered outside the bank, a few of us, including Rae and myself, went inside early. Just as the “bank busters” tried to make their way inside, the manager locked the doors and refused to let anyone else in.

With only three of us inside, we didn’t know whether to proceed or bail. We decided to say a few chants, sing a Break Up the Banks song we had practiced, and then make a quick exit. We had just taken off our shirts and belted out a few chants when the police stormed in.

I gathered my belongings, ready to follow what I assumed would be a request to leave. Instead, the police treated me like I was about to rob the bank, pinning my arms behind my back and putting me in handcuffs. “We were never asked to leave, we were only exercising our right to free speech, we didn’t harm anyone or block any doors,” I argued to no avail.

Meanwhile Rae, who had run outside, was brutally tackled to the ground, her head smashed against the pavement. Crying and clearly in pain, she was roughly pulled up and cuffed. So was Monica Hutchins, who was arrested by the same out-of-control officer for merely marching and singing on the sidewalk. Occupy Wall Street activist Mark Adams, who had come to Rae’s aid, was also grabbed and arrested.

I later learned that the gentle, soft-spoken Mark Adams had personal reasons for protesting the bank, and for joining the Occupy Wall Street movement. His father had been approved for a mortgage by a small private lender, but then his dad got sick and passed away. Mark tried to keep the house, but the lender sold the loan to Bank of America who then foreclosed, leaving him homeless.

The four of us, arrested at 2:30pm on March 8, were taken to the local jail, where we were booked, and then transferred to the infamous clink known as “The Tombs.” We were locked up in a dirty, freezing cell with about 15 women who had been picked up on various charges like prostitution, shoplifting, drug dealing and domestic violence. All our possessions, including our jackets, had been taken away, so we were stuck in the freezing cell with no coats or blankets. The sleeping accommodations consisted of three dirty plastic mats—meant for one person each—thrown on the floor to “share” among all of us. We spent a long, sleepless night shivering in the cold.

The women in the cell were proud of us for standing up to the banks; so were some of the police. “They were arrested for protesting against foreclosures at Bank of America,” one of the policemen told a policewoman while I was being fingerprinted. “I’m with you there,” she said. “Those bankers are thieves. They take government money to bail them out but then they refuse to lend money to black women like me. I lost my house because I couldn’t get a bank loan, even though I have a good, steady job.”

Her case is all too common. And minority women who do get loans have been targeted with the most expensive, punitive and toxic loans. Women are 32% more likely than men to receive sub‑prime mortgages, and Latina and African-American women borrowers are the most vulnerable.

*****

After several rounds of fingerprinting, two iris scans, one disgusting peanut butter sandwich, and 26 hours in a cold cell, we finally got to see a judge. We were charged with two counts of trespassing, and have to return to court on March 30.

In jail, you see the stark contrast between those who create the economic havoc and those who really pay the consequences.

Meeting women locked up for such petty crimes as stealing a $40 bottle of perfume from Sephora, I thought about how much money CEO Brian Moynihan and his cronies have stolen from the American people. In fact, the very same day we were protesting, a whistleblower filed court documents charging Bank of America with knowingly and fraudulently seeking to limit homeowner mortgage modifications under the Home Affordable Modification Program.

Occupy Wall Street has been tapping into the anger against these unaccountable, “too big to fail” institutions, not only protesting against them but spurring a campaign to move many millions of dollars from Wall Street to Main Street. In the past year over a million Americans took their money out of big banks and opened accounts with credit unions. Credit union profit jumped 41 percent to $6.4 billion last year. The exodus continues this year, as greedy financial giants continue to squeeze their customers by hiking up fees.

While many of us are protesting, our government has failed to hold the banks accountable, prosecute the wrongdoers or restructure our financial system. The banks that were too big to fail then are even bigger now. The top 6 banks that had 7 trillion dollars in assets now have 9 or 10 trillion, and the Federal Reserve and the Treasury Department continue to prop up these behemoths, instead of breaking them up into smaller, more sustainable banks. The Dodd-Frank legislation passed to regulate the financial institutions is too cumbersome (2,300 pages compared to the 24-page Glass-Steagall Act); the big banks with their fancy lawyers can find all kinds of loopholes, while the smaller banks are now forced to pay for the avarice of the big ones.

Looking back on March 8, going to jail for justice was an appropriate way to commemorate a day that, starting in 1911, was a call by women workers for shorter hours, better pay, voting rights and an end to discrimination. Our foremothers like hell-raiser Mother Jones would certainly approve of standing up to rapacious banks and bankers. She might have even approved of the pink bras. After all, the feisty Mother Jones did have this advice for women: “Whatever your fight, don’t be ladylike.”

The economic crisis that was precipitated that year was something of a revelation for the Icelandic public.  The country neared bankruptcy, and applied for assistance from the International Monetary Fund.  Its three major banks were put into receivership.  The stock exchange shed 90 percent of its value.  Government’s role was forfeited. Theirs ceased being protecting the public – it was rather a case of colluding with an imploding financial sector, a case of throwing the public into the economic ring of gladiatorial combat.  The disaster also involved foreign governments – the Netherlands and Britain had to carry the can for hundreds of thousands of their citizens who had placed money in the Icelandic banking system.

There are broader questions of debate that crop up regarding Haarde’s trial.  To single out one person as the demonic embodiment, the one true fiend of what became a global crisis, is a false solution.  Thousands were involved, and each with varying degrees of culpability.  ‘In a nutshell’ writes Bendikt Johannesson of the Iceland Review (March 11), ‘a majority of Althingi, Iceland’s Parliament, voted to charge a political opponent for not preventing a world economic crisis.’

Nicolas Vernon of Brueghel, a think-tank based in Brussels, feels that judicial interventions should have little role to play in dealing with a ‘bad policy decision’.  It has, after all, been admitted that this is a ‘political trial’ (Iceland Review Online, March 10).  For Vernon, the only true punishment is through the ballot, a resounding dismissal of governments who err in their judgments.  Such arguments, however, only go so far.  The judicial forum is often an appropriate one to emphasise accountability.  The question to be asked, though, is what Haarde can be accountable for.

Furthermore, how does one try a lemming intent on committing suicide?  Ideology is a way of deflecting reality, and for so long that ideology has placed its bets on the iniquitous fantasy of the free market.  One good example of this was Iceland’s former central bank chief David Oddsson, a true devotee of deregulation, and a key figure behind implementing policies that led to a staggering growth in the banking sector – some bloating to 10 times the size of the economy.  A closer inspection of Haarde’s record certainly shows that he was no more culpable that his colleagues, perhaps even less so.

At the trial, Oddsson, who should count himself as lucky not to have made a speedy entry into the dock himself, claimed that he was the prophet of warning, an oracle who could see the devilish machinations of the marketplace unfolding.  He ‘warned the government, in the strongest possible terms, that the Icelandic banks were facing serious difficulties re-capitalising themselves as the European banks no longer believed in their stability’ (Reuters, March 6).  Haarde, it seems, can’t count on his friendship with Oddsson to save him.

The cultural dimensions of a state and its citizens towards money is also a case in point, making prosecutions, should they ever happen in such cases as Greece, unviable.  To, however, assume that no action should be taken against heads of state who bring their state to bankruptcy would be a concession to atrocious decisions.

What many of Iceland’s citizens want is an admission more than a conviction, an extracted public confession.  Silla Sigurgeirsdottir of the University of Iceland is of such an opinion.  ‘The most important thing is not that he is convicted.  The most important thing is that somebody says I’m sorry, I made a mistake. I neglected my duty’ (The National, March 11).

Once the black sheep of high finance, government owned banks can reassure depositors about the safety of their savings and can help maintain a focus on productive investment in a world in which effective financial regulation remains more of an aspiration than a reality.

– Centre for Economic Policy Research, VoxEU.org (January 2010)

Public sector banking is a concept that is relatively unknown in the United States.  Only one state—North Dakota—owns its own bank.  North Dakota is also the only state to escape the credit crisis of 2008, sporting a budget surplus every year since; but skeptics write this off to coincidence or other factors.  The common perception is that government bureaucrats are bad businessmen.  To determine whether government-owned banks are assets or liabilities, then, we need to look farther afield.

When we remove our myopic U.S. blinders, it turns out that globally, not only are publicly-owned banks quite common but that countries with strong public banking sectors generally have strong, stable economies.  According to an Inter-American Development Bank paper presented in 2005, the percentage of state ownership in the banking industry globally by the mid-nineties was over 40 percent.[i]  The BRIC countries—Brazil, Russia, India, and China—contain nearly three billion of the world’s seven billion people, or 40% of the global population.  The BRICs all make heavy use of public sector banks, which compose about 75% of the banks in India, 69% or more in China, 45% in Brazil, and 60% in Russia.

The BRICs have been the main locus of world economic growth in the last decade.  China Daily reports, “Between 2000 and 2010, BRIC’s GDP grew by an incredible 92.7 percent, compared to a global GDP growth of just 32 percent, with industrialized economies having a very modest 15.5 percent.”

All the leading banks in the BRIC half of the globe are state-owned.  In fact, the largest banks globally are state-owned, including:

• The two largest banks by market capitalization (ICBC and China Construction Bank)
• The largest bank by deposits (Japan Post Bank)
• The largest bank by assets (Royal Bank of Scotland, now nationalized)
• The world’s largest development bank (BNDES in Brazil).

A May 2010 article in The Economist noted that the strong and stable publicly-owned banks of India, China and Brazil helped those countries weather the banking crisis afflicting most of the rest of the world in the last few years.  According to Professor Kurt von Mettenheim of the Sao Paulo Business School of Brazil:

Government banks provided counter cyclical credit and policy options to counter the effects of the recent financial crisis, while realizing competitive advantage over private and foreign banks.  Greater client confidence and official deposits reinforced liability base and lending capacity.  The credit policies of BRIC government banks help explain why these countries experienced shorter and milder economic downturns during 2007-2008.

Surprising Findings

In a 2010 research paper summarized on VoxEU.org, economists Svetlana Andrianova, et al., wrote that the post-2008 nationalization of a number of very large banks, including the Royal Bank of Scotland, “offers an opportune moment to reduce the political power of bankers and to carry out much needed financial reforms.”  But “there are concerns that governments may be unable to run nationalised banks efficiently.”

Not to worry, say the authors:

Follow-on research we have carried out (Andrianova et al, 2009) . . . shows that government ownership of banks has, if anything, been robustly associated with higher long run growth rates.

Using data from a large number of countries for 1995-2007, we find that, other things equal, countries with high degrees of government ownership of banking have grown faster than countries with little government ownership of banks. We show that this finding is robust to a battery of econometric tests.

Expanding on this theme in their research paper, the authors write:

While many countries in continental Europe, including Germany and France, have had a fair amount of experience with government-owned banks, the UK and the USA have found themselves in unfamiliar territory. It is therefore perhaps not surprising that there is deeply ingrained hostility in these countries towards the notion that governments can run banks effectively. . . . Hostility towards government-owned banks reflects the hypothesis . . . that these banks are established by politicians who use them to shore up their power by instructing them to lend to political supporters and government-owned enterprises. In return, politicians receive votes and other favours. This hypothesis also postulates that politically motivated banks make bad lending decisions, resulting in non-performing loans, financial fragility and slower growth.

But that is not what the data of these researchers showed:

[W]e have found that . . . countries with government-owned banks have, on average, grown faster than countries with no or little government ownership of banks. . . . This is, of course, a surprising result, especially in light of the widespread belief—typically supported by anecdotal evidence—that ‘… bureaucrats are generally bad bankers’ . . . .

What accounts for their surprising findings?  The authors provide a novel explanation:

We suggest that politicians may actually prefer banks not to be in the public sector. . . . Conditions of weak corporate governance in banks provide fertile ground for quick enrichment for both bankers and politicians – at the expense ultimately of the taxpayer. In such circumstances politicians can offer bankers a system of weak regulation in exchange for party political contributions, positions on the boards of banks or lucrative consultancies.  Activities that are more likely to provide both sides with quick returns are the more speculative ones, especially if they are sufficiently opaque as not to be well understood by the shareholders such as complex derivatives trading.

Government owned banks, on the other hand, have less freedom to engage in speculative strategies that result in quick enrichment for bank insiders and politicians. Moreover, politicians tend to be held accountable for wrongdoings or bad management in the public sector but are typically only indirectly blamed, if at all, for the misdemeanours of private banks. It is the shareholders who are expected to prevent these but lack of transparency and weak governance stops them from doing so in practice. On the other hand, when it comes to banks that are in the public sector, democratic accountability of politicians is more likely to discourage them from engaging in speculation. In such banks, top managers are more likely to be compelled to focus on the more mundane job of financing real businesses and economic growth.

The BRICs as a Global Power

Focusing on the financing of real businesses and economic growth seems to be the secret of the BRICs, which are leading the world in economic development today.  But the BRIC phenomenon is more than just a growth trend identified by an economist.  It is now an international organization, an alliance of countries representing the common interests and goals of its members.  The first BRIC meeting, held in 2008, was called a triumph for former Russian President Vladimir Putin’s policy of promoting multilateral arrangements that would challenge the United States’ concept of a unipolar world.

The BRIC countries had their first official summit and became a formal organization in Yekaterinburg, Russia, in 2009.  They met in Brazil in 2010 and in China in 2011, and they will meet in India in 2012.  In 2010, at China’s invitation, South Africa joined the group, making it “BRICS” and adding a strategic presence on the African continent.

The BRICS seek more voice in the United Nations, the IMF, and the World Bank.  They are even discussing their own multicultural bank to fund projects within their own nations, in direct competition with the IMF.  They oppose the dollar as global reserve currency.  After the Yekaterinburg summit, they called for a new global reserve currency, one that was diversified, stable and predictable; and they have the clout to get it.  According to Liam Halligan, writing in The U.K.Telegraph:

The BRICs account for . . . around three-quarters of total currency reserves. They have few serious fiscal issues and all are net external creditors.

Western financial interests have long fought to maintain the dollar as global reserve currency, but they are losing that battle, despite economic and military coercion.  Russia, China and India are now nuclear powers.  The BRICS will have to be negotiated with, and the first step to forming a working relationship is to understand how their economies work.  Rather than declaring war on their more successful practices, we may decide to assimilate some of them into our own.

Long overweight, he has always sought to expand his eating horizon. Starting with the blasé turkey, he moved on to spicy Mexican, Cuban, Puerto Rican, Filipino and Okinawan, etc. Lately he’s been stuffing his face with all-you-can-eat helpings of hummus, sharwama and sheikh mahshi. Yummm! But no earth is big enough to satisfy this infinite growth appetite, so with his overseas options dwindling, the fat man is consuming his own body. America is eating up its own young and future.

What to do? When a country is this sick, how do you go about curing it? And what should we tend to first? Among presidential candidates, the only one with anything like a sensible platform is Ron Paul, who insists on bringing all the troops home, restoring our raped Constitution, and lopping off the Federal Reserve, thus castrating our thieving banksters, but since Paul threatens the beast so directly, there’s no way our military/banking complex will allow him to win.

American electoral politics is modeled after game shows, sit-coms, professional wrestling and Jerry Springer, with everything well-orchestrated and media sculpted, but should the masses fail to cheer, laugh, tear up or become indignant on cues, there’s still the Diebold voting machine to yield a preordained result. Even with a fair shake, however, voters may still reject Ron Paul because of his opposition to social programs and abortion, as well as his laissez-faire stance towards big business.

As for third party candidates, the last one to have even the remotest chance of winning was Ross Perot, in 1992, but he ended up with zero Electoral College vote! As for Ralph Nader, his best showing was 2.74% of the popular vote, in 2000. In short, we don’t have a viable candidate to lever us from this quicksand. The system simply won’t allow it.

It won’t allow it because it’s not there to serve us, silly. This is no government for the people. Where have you been? While we had a brief moment occupying a few plazas, dusty lots and parks, they continued to occupy everything else. With their nonstop media pollution, they occupy your very mind. So what are you going to do about it?

Many of us just want to get off this death train. In 2008, a Zogby International poll revealed that 22% of Americans believed that “any state or region has the right to peaceably secede and become an independent republic.” A growing number would rather be a citizen of the Second Vermont Republic or Cascadia, etc., and in Wyoming, lawmakers just narrowly voted down a “doomsday bill” that would have prepared the state to function independently of Washington. Though it was posed as an emergency measure, it sounded suspiciously like a secession plan, what with the state having its own currency, army and even aircraft carrier.

Aspiring Cascadians chafe having “to put up with indifference and condescendence from distant seats of power,” but you can live in Washington DC itself and feel exactly the same way. Just ask the many homeless sprawling on the sidewalks within sight of the US Capitol, or the people of Adams Morgan or Anacostia. Like those in Bagdad or Kabul, they are not being served by the war criminals who huddle daily on that hill. So the distance is ideological and not necessarily physical. In the latest poll, released three weeks ago, 86% of Americans disapprove of the job Congress is doing. Some may see their “representatives” as incompetent, but many Americans already know that they are being ruled by an alien government that only got elected through a rigged system and lying.

The more illegitimate they become, the more flags they display, and the bigger the flags, though they care nothing about what the flag stands for. To them, the American flag is just something to drape over your coffin, after they’ve sent you to commit mass murder for Big Oil, Big Banks and Israel, after they’ve used you thoroughly to enrich themselves. Isn’t it time we bury this grotesquely corrupt and bloodthirsty cabal? The big question is how?

Strategies, strategies. Recognizing that one-day protests accomplish nothing, the Occupy Movement sought to disrupt the system by occupying Wall Street. It didn’t happen that way, of course, because hundreds of cops were brought in to protect the New York Stock Exchange for months on end.

Thwarted, the occupiers moved to a park, and that became the model nationwide, but you can occupy as many parks as you want and the system will not change. As you sleep outside and become symbolically homeless, your sneering masters will continue to ruin lives by starting wars and ripping people off in plain sight.

And so the first stage of our rebellion is over, and though I fully applaud the courage and sacrifice of those who endured prolonged discomfort or police brutality to rouse America from its slumber, we must now aim for tangible results and not symbolic victories. Since time is short, we must get deadly serious. No more hedges.

The long-awaited settlement between 49 state Attorneys General and the big five robo-signing banks is proving to be a major disappointment before it has even been signed, sealed and court approved.  Critics maintain that the bankers responsible for the housing crisis and the jobs crisis will again be buying their way out of jail, and the curtain will again drop on the scene of the crime.

We may not be able to beat the banks, but we don’t have to play their game.  We can take our marbles and go home.  The Move Your Money campaign has already prompted more than 600,000 consumers to move their funds out of Wall Street banks into local banks, and there are much larger pools that could be pulled out in the form of state revenues.  States generally deposit their revenues and invest their capital with large Wall Street banks, which use those hefty sums to speculate, invest abroad, and buy up the local banks that service our communities and local economies.  The states receive a modest interest, and Wall Street lends the money back at much higher interest.

Rhode Island is a case in point.  In an article titled “Where Are R.I. Revenues Being Invested? Not Locally,” Kyle Hence wrote in ecoRI News on January 26th:

According to a December Treasury report, only 10 percent of Rhode Island’s short-term investments reside in truly local in-state banks, namely Washington Trust and BankRI. Meanwhile, 40 percent of these investments were placed with foreign-owned banks, including a British-government owned bank under investigation by the European Union.

Further, millions have been invested by Rhode Island in a fund created by a global buyout firm . . . . From 2008 to mid-2010, the fund lost 10 percent of its value — more than $2 million. . . . Three of four of Rhode Island’s representatives in Washington, D.C., count [this fund] amongst their top 25 political campaign donors . . . .

Hence asks:

Are Rhode Islanders and the state economy being served well here? Is it not time for the state to more fully invest directly in Rhode Island, either through local banks more deeply rooted in the community or through the creation of a new state-owned bank?

Hence observes that state-owned banks are “[o]ne emerging solution being widely considered nationwide  . . . . Since the onset of the economic collapse about five years ago, 16 states have studied or explored creating state-owned banks, according to a recent Associated Press report.”

2012 Additions to the Public Bank Movement

Make that 17 states, including three joining the list of states introducing state bank bills in 2012: Idaho (a bill for a feasibility study), New Hampshire (a bill for a bank), and Vermont (introducing THREE bills—one for a state bank study, one for a state currency, and one for a state voucher/warrant system).  With North Dakota, which has had its own bank for nearly a century, that makes 18 states that have introduced bills in one form or another—36% of U.S. states.  For states and text of bills, see here.

Other recent state bank developments were in Virginia, Hawaii, Washington State, and California, all of which have upgraded from bills to study the feasibility of a state-owned bank to bills to actually establish a bank.  The most recent, California’s new bill, was introduced on Friday, February 24th.

All of these bills point to the Bank of North Dakota as their model.  Kyle Hence notes that North Dakota has maintained a thriving economy throughout the current recession:

One of the reasons, some say, is the Bank of North Dakota, which was formed in 1919 and is the only state-owned or public bank in the United States. All state revenues flow into the Bank of North Dakota and back out into the state in the form of loans.

Since 2008, while servicing student, agricultural and energy— including wind — sector loans within North Dakota, every dollar of profit by the bank, which has added up to tens of millions, flows back into state coffers and directly supports the needs of the state in ways private banks do not.

Publicly-owned Banks and the Housing Crisis

A novel approach is taken in the new Hawaii bill:  it proposes a program to deal with the housing crisis and the widespread problem of breaks in the chain of title due to robo-signing, faulty assignments, and MERS.  (For more on this problem, see here.)  According to a February 10th report on the bill from the Hawaii House Committees on Economic Revitalization and Business & Housing:

The purpose of this measure is to establish the bank of the State of Hawaii in order to develop a program to acquire residential property in situations where the mortgagor is an owner-occupant who has defaulted on a mortgage or been denied a mortgage loan modification and the mortgagee is a securitized trust that cannot adequately demonstrate that it is a holder in due course.

The bill provides that in cases of foreclosure in which the mortgagee cannot prove its right to foreclose or to collect on the mortgage, foreclosure shall be stayed and the bank of the State of Hawaii may offer to buy the property from the owner-occupant for a sum not exceeding 75% of the principal balance due on the mortgage loan.  The bank of the State of Hawaii can then rent or sell the property back to the owner-occupant at a fair price on reasonable terms.

Arizona Senate Bill 1451, which just passed the Senate Banking Committee 6 to 0, would do something similar for homeowners who are current on their payments but whose mortgages are underwater (exceeding the property’s current fair market value).  Martin Andelman calls the bill a “revolutionary approach to revitalizing the state’s increasingly water-logged housing market, which has left over 500,000 of Arizona’s homeowners in a hopelessly immobile state.”

The bill would establish an Arizona Housing Finance Reform Authority to refinance the mortgages of Arizona homeowners who owe more than their homes are currently worth.  The existing mortgage would be replaced with a new mortgage from AHFRA in an amount up to 125% of the home’s current fair market value. The existing lender would get paid 101% of the home’s fair market value, and would get a non-interest-bearing note called a “loss recapture certificate” covering a portion of any underwater amounts, to be paid over time.  The capital to refinance the mortgages would come from floating revenue bonds, and payment on the bonds would come solely from monies paid by the homeowner-borrowers. An Arizona Home Insurance Fund would create a cash reserve of up to 20 percent of the bond and would be used to insure against losses. The bill would thus cost the state nothing.

Critics of the Arizona bill maintain that it shifts losses from collapsed property values onto banks and investors, violating the law of contracts; and critics of the Hawaii bill maintain that the state bank could wind up having paid more than market value for a slew of underwater homes.  An option that would avoid both of these objections is one suggested by Michael Sauvante of the Commonwealth Group, discussed earlier here: the state or county could exercise its right of eminent domain on blighted, foreclosed and abandoned properties.  It could offer to pay fair market value to anyone who could prove title (something that with today’s defective title records normally can’t be done), then dispose of the property through a publicly-owned land bank as equity and fairness dictates.  If a bank or trust could prove title, the claimant would get fair market value, which would be no less than it would have gotten at an auction; and if it could not prove title, it legally would have no claim to the property.  Investors who could prove actual monetary damages would still have an unsecured claim in equity against the mortgagors for any sums owed.

Rhode Island Next?

As the housing crisis lingers on with little sign of relief from the Feds, innovative state and local solutions like these are gaining adherents in other states; and one of them is Rhode Island, which is in serious need of relief.  According to The Pew Center on the States, “The country’s smallest state . . . was one of the first states to fall into the recession because of the housing crisis and may be one of the last to emerge.”

Rhode Islanders are proud of having been first in a number of more positive achievements, including being the first of the 13 original colonies to declare independence from British rule.  A state bank presentation was made to the president of the Rhode Island Senate and other key leaders earlier this month that was reportedly well received.  Proponents have ambitions of making Rhode Island the first state in this century to move its money out of Wall Street into its own state bank, one owned and operated by the people for the people.

Do you know where your money spends the night?

Wall Street banks are trashing our economy and our environment in the name of their own profits—do you buy into their corruption and greed? It’s time to Pink Slip Big Banks and invest in a more peaceful and just future by moving your money!  How?  I used the Move your Money tool to find a listing of local banks and credit unions in my area.  I selected New Resources Bank in San Francisco, the same bank that Rainforest Action Network and CODEPINK use.  After opening my new account, I used the 7 Simple Steps To Move Your Checking Account checklist to really move my money, and finally, I proudly visited a B of A branch and presented them with a Pink Slip – they were friendly enough about losing my business (I admit I’m no millionaire so it wasn’t a big loss, though it was the principle of the thing).

This year on International Women’s Day, March 8th, I plan to join the women of the 99% at Break Up Bank of America actions.  The Women Occupy Call to Action is an inspiring statement of solidarity with the Occupy Movement and with the thousands of homeowners across the country who have been affected by home foreclosure. Women Occupy is supporting the women-led campaigns of Public Citizen and Rainforest Action Network, to hold Bank of America accountable for the predatory economic policies that are destroying our families and communities.  On March 8th activists in dozens of cities from NYC to LA are planning to occupy Bank of America branches by staging Super(s)hero Showdowns against Bandit of America, holding Really REALLY free markets to show what a feminist gift economy can look like, creating Walk in Our Shoes displays with pairs of shoes to illustrate the real people impacted by home foreclosure, job loss, and environmental destruction, and other creative tactics.  Plus Women Occupy is asking people to cancel their big bank accounts on March 8th and move their money to local banks or credit unions.  Not that another reason is needed to move your money, but why not do it on a big day of action and in solidarity with the 51% of the 99%: women?!

Since its inception in the early twentieth century, International Women’s Day has been rooted in the struggle for economic justice, growing out of local demonstrations by women workers demanding shorter hours, better pay, voting rights, and an end to discrimination.  Women have long been the prime targets of predatory bank policies and economic collapse: women are 32% more likely than men to receive sub‑prime mortgages and Latina and African-American women borrowers are most likely to receive sub‑prime loans at every income level.  Women make up 51% of the world’s population but 70% of the world’s poor. We perform 66% of the world’s work, produce 50% of the food, but earn 10% of the income and own less than 1% of the world’s property.  Our work continues to be unpaid, underpaid and undervalued, making us invisible to economic indicators and ineligible for the rewards reaped by the most “productive” members of society.  It’s time we turned the tables and started going after the big banks! And what better suspect than the biggest of the big banks – Bank of America?

Why target Bank of America? As of June 2010, Bank of America had $88 billion worth of foreclosed homes in its portfolio — more than any other mortgage servicer in the country. In order to please investors they even started kicking people out of homes faster than other banks, instead of working with them to refinance or restructure their mortgages. Despite having higher average credit scores than men, women are more likely to receive subprime mortgages that leave them vulnerable to home foreclosure.  Bank of America had a hand in the worst of the subprime lending excesses, providing financing to four of the five largest subprime lenders during the years prior to the crash. Together, these firms issued over $320 billion in subprime loans from 2005 through 2007, a disproportionate number of which went to women who would have qualified for traditional loans with far lower costs.

B of A is the official bank of the US military and has branches by or on many bases, which allows them to entice military personnel to take out loans at usurious rates. Personal loans made to soldiers for a few thousand dollars can actually keep them indebted for the rest of their lives. Last May, Bank of America paid $22 million to settle charges of improperly foreclosing on active-duty troops.  The list of reasons goes on and on – there’s even a published list of 10 reasons to hate Bank of America.

And what’s the ask of Bank of America?  Activists are asking that Bank of America be regulated and broken up into smaller, safer pieces that won’t take America down with them if they fail.  B of A can invest in the planet and stop funding coal projects that are polluting our communities and ruining the climate.  B of A can pay the statutorily required 35% corporate income tax instead of draining the government of revenue through off-shore tax shelters, loopholes, and scams.  Instead of endless home foreclosures, B of A could help stabilize the housing market and revitalize the economy by reducing principal for all underwater homeowners to current market value. This would end the foreclosure crisis, reset the housing market, pump billions of dollars back into the economy, and create 1 million jobs a year.

Moving our money is one of the powerful ongoing direct actions that has come out of the growing Occupy movement.  Let’s escalate our individual efforts by coordinating actions at Bank of America in solidarity with the existing campaigns targeting B of A coordinated by Rainforest Action Network, Public Citizen, and others.  And let’s ask our cities, organizations, and other institutions to divest from big banks and invest in local economy and sustainability.  Together we can send a loud message to Wall Street and big banks: not with our money, not on our dime!

Financial market cynics have assumed all along that Dodd-Frank did not end “too big to fail” but instead created a charmed circle of protected banks labeled “systemically important” that will not be allowed to fail, no matter how badly they behave.

That may be, but there is one bit of bad behavior that Uncle Sam himself does not have the funds to underwrite: the $32 trillion market in credit default swaps (CDS).  Thirty-two trillion dollars is more than twice the U.S. GDP and more than twice the national debt.

CDS are a form of derivative taken out by investors as insurance against default.  According to the Comptroller of the Currency, nearly 95% of the banking industry’s total exposure to derivatives contracts is held by the nation’s five largest banks: JPMorgan Chase, Citigroup, Bank of America, HSBC, and Goldman Sachs.  The CDS market is unregulated, and there is no requirement that the “insurer” actually have the funds to pay up.  CDS are more like bets, and a massive loss at the casino could bring the house down.

It could, at least, unless the casino is rigged.  Whether a “credit event” is a “default” triggering a payout is determined by the International Swaps and Derivatives Association (ISDA), and it seems that the ISDA is owned by the world’s largest banks and hedge funds.  That means the house determines whether the house has to pay.

The Houses of Morgan, Goldman and the other Big Five are justifiably worried right now, because an “event of default” declared on European sovereign debt could jeopardize their $32 trillion derivatives scheme.  According to Rudy Avizius in an article on The Market Oracle (UK) on February 15th, that explains what happened at MF Global, and why the 50% Greek bond write-down was not declared an event of default.

If you paid only 50% of your mortgage every month, these same banks would quickly declare you in default.  But the rules are quite different when the banks are the insurers underwriting the deal.

MF Global: Canary in the Coal Mine?

MF Global was a major global financial derivatives broker until it met its unseemly demise on October 30, 2011, when it filed the eighth-largest U.S. bankruptcy after reporting a “material shortfall” of hundreds of millions of dollars in segregated customer funds.  The brokerage used a large number of complex and controversial repurchase agreements, or “repos,” for funding and for leveraging profit.  Among its losing bets was something described as a wrong-way $6.3 billion trade the brokerage made on its own behalf on bonds of some of Europe’s most indebted nations.

Avizius writes:

[A]n agreement was reached in Europe that investors would have to take a write-down of 50% on Greek Bond debt. Now MF Global was leveraged anywhere from 40 to 1, to 80 to 1 depending on whose figures you believe. Let’s assume that MF Global was leveraged 40 to 1, this means that they could not even absorb a small 3% loss, so when the “haircut” of 50% was agreed to, MF Global was finished. It tried to stem its losses by criminally dipping into segregated client accounts, and we all know how that ended with clients losing their money. . . .

However, MF Global thought that they had risk-free speculation because they had bought these CDS from these big banks to protect themselves in case their bets on European Debt went bad. MF Global should have been protected by its CDS, but since the ISDA would not declare the Greek “credit event” to be a default, MF Global could not cover its losses, causing its collapse.

The house won because it was able to define what “winning” was.  But what happens when Greece or another country simply walks away and refuses to pay?  That is hardly a “haircut.”  It is a decapitation.  The asset is in rigor mortis.  By no dictionary definition could it not qualify as a “default.”

That sort of definitive Greek default is thought by some analysts to be quite likely, and to be coming soon.  Dr. Irwin Stelzer, a senior fellow and director of Hudson Institute’s economic policy studies group, was quoted in Saturday’s Yorkshire Post (UK) as saying:

It’s only a matter of time before they go bankrupt. They are bankrupt now, it’s only a question of how you recognise it and what you call it.

Certainly they will default . . . maybe as early as March. If I were them I’d get out [of the euro].

The Midas Touch Gone Bad

In an article in The Observer (UK) on February 11th  titled “The Mathematical Equation That Caused the Banks to Crash,” Ian Stewart wrote of the Black-Scholes equation that opened up the world of derivatives:

The financial sector called it the Midas Formula and saw it as a recipe for making everything turn to gold.  But the markets forgot how the story of King Midas ended.

As Aristotle told this ancient Greek tale, Midas died of hunger as a result of his vain prayer for the golden touch.  Today, the Greek people are going hungry to protect a rigged $32 trillion Wall Street casino.  Avizius writes:

The money made by selling these derivatives is directly responsible for the huge profits and bonuses we now see on Wall Street. The money masters have reaped obscene profits from this scheme, but now they live in fear that it will all unravel and the gravy train will end. What these banks have done is to leverage the system to such an extreme, that the entire house of cards is threatened by a small country of only 11 million people. Greece could bring the entire world economy down. If a default was declared, the resulting payouts would start a chain reaction that would cause widespread worldwide bank failures, making the Lehman collapse look small by comparison.

Some observers question whether a Greek default would be that bad.  According to a comment on Forbes on October 10, 2011:

[T]he gross notional value of Greek CDS contracts as of last week was €54.34 billion, according to the latest report from data repository Depository Trust & Clearing Corporation (DTCC). DTCC is able to undertake internal netting analysis due to having data on essentially all of the CDS market. And it reported that the net losses would be an order of magnitude lower, with the maximum amount of funds that would move from one bank to another in connection with the settlement of CDS claims in a default being just €2.68 billion, total.  If DTCC’s analysis is correct, the CDS market for Greek debt would not much magnify the consequences of a Greek default—unless it stimulated contagion that affected other European countries.

It is the “contagion”, however, that seems to be the concern.  Players who have hedged their bets by betting both ways cannot collect on their winning bets; and that means they cannot afford to pay their losing bets, causing other players to also default on their bets.  The dominos go down in a cascade of cross-defaults that infects the whole banking industry and jeopardizes the global pyramid scheme.  The potential for this sort of nuclear reaction was what prompted billionaire investor Warren Buffett to call derivatives “weapons of financial mass destruction.”  It is also why the banking system cannot let a major derivatives player—such as Bear Stearns or Lehman Brothers—go down.  What is in jeopardy is the derivatives scheme itself.  According to an article in The Wall Street Journal on January 20th:

Hanging in the balance is the reputation of CDS as an instrument for hedgers and speculators—a $32.4 trillion market as of June last year; the value that may be assigned to sovereign debt, and $2.9 trillion of sovereign CDS, if the protection isn’t seen as reliable in eliciting payouts; as well as the impact a messy Greek default could have on the global banking system.

Players in the future may simply refuse to play.  When the house is so obviously rigged, the legitimacy of the whole CDS scheme is called into question.  As MF Global found out the hard way, there is no such thing as “risk-free speculation” protected with derivatives.

That is good.  She and the other AGs should not sign until a thorough investigation has been conducted.  The evidence to date suggests that “robo-signing” was not a mere technical default or sloppy business practice but was part and parcel of a much larger fraud, the fraud that brought down the whole economy in 2008.  It is not just distressed homeowners but the entire economy that has paid the price, resulting in massive unemployment and a shrunken tax base, throwing state and local governments into insolvency and forcing austerity measures and cutbacks in government services across the nation.

The details of the robo-signing scam were spelled out in my last article, here.  The robo-signing fraud and its implications are expanded on below.

Why All the Robo-signing?

Over half the homes in the country are now held in the name of an electronic database called MERS—Mortgage Electronic Registration Services.  MERS is a smokescreen behind which mortgages were sold to trusts that sold them to investors.  The mortgages were chopped into pieces and sold as “mortgage-backed securities” (MBS), which traded in a supposedly liquid market.  That meant the investors could sell them in the money market at any time on a day’s notice.  Yale economist Gary Gorton gives this example:

Suppose the institutional investor is Fidelity, and Fidelity has $500 million in cash that will be used to buy securities, but not right now. Right now Fidelity wants a safe place to earn interest, but such that the money is available in case the opportunity for buying securities arises. Fidelity goes to Bear Stearns and “deposits” the $500 million overnight for interest. What makes this deposit safe? The safety comes from the collateral that Bear Stearns provides. Bear Stearns holds some asset‐backed securities [with] a market value of $500 millions. These bonds are provided to Fidelity as collateral. Fidelity takes physical possession of these bonds. Since the transaction is overnight, Fidelity can get its money back the next morning, or it can agree to “roll” the trade. Fidelity earns, say, 3 percent.

That is where the robo-signing came in.  Foreclosure defense attorneys armed with the tools of discovery have discovered that robo-signing — involving falsified signatures assigning mortgages back to the trusts allegedly owning them — occurred not just occasionally or randomly but in virtually every case.  Why?  Because the mortgages had to be left free to be bought and sold on a daily basis in the money market by investors.  The investors are not interested in making 30 year loans.  They want something short-term with immediate rights of withdrawal like a deposit account.

The Hazards of Borrowing Short to Lend Long

The problem is that when panicked investors all exercise that right at once, there is no cheap funding available to back the 30 year mortgage loans, rendering the banks insolvent.  And that is what happened on September 15, 2008, when Lehman Brothers, a major investment bank like Bear Stearns, went bankrupt.

According to Representative Paul Kanjorski, speaking on C-SPAN in January 2009, the collapse of Lehman Brothers precipitated a $550 billion run on the money market funds.  A report by the Joint Economic Committee pointed to the fact that the $62 billion Reserve Primary Fund had “broken the buck” (fallen below a stable $1 per share) due to its Lehman investments.  The massive bank run that followed was the dire news that Treasury Secretary Henry Paulson presented to Congress behind closed doors, prompting Congressional approval of Paulson’s $700 billion bank bailout despite deep misgivings.

The sleight of hand that brought the banking system down was that the mortgages backing the money market were supposedly held by trusts that had lent money to homeowners for 15 years or 30 years.  It was the classic “borrowing short to lend long,” a shell game in which banks have engaged for hundreds of years, routinely precipitating bank panics and bank runs when the depositors or the investors all pull their short-term money out at the same time.

The Shadow Banking System Is Still Unregulated

Periodic bank panics were averted in the conventional banking system only when the government agreed to insure the deposits of individual depositors in 1933.  But FDIC insurance covered only $100,000 (now $250,000), and large institutional investors had far more than that to invest.  The shadow banking system, in which deposits were “insured” with mortgage-backed securities, developed in response.  But the shadow banking system is unregulated and is just as prone to another collapse today as it was in 2008.  The Dodd-Frank banking “reforms” barely touched it.  As noted in an article titled “Risky Debt Use on Repo Market Hits 2008 Levels” in today’s Financial Times:

In the repo market, banks pledge their securities as collateral for short-term loans from money managers and other investors.  The market played a key role in the build-up to the 2008 financial crisis. Banks used toxic assets, such as repackaged subprime loans, to secure trillions of dollars worth of cheap funding.

When the US housing bubble burst, the banks’ trading partners refused to accept such securities as collateral and the repo market rapidly contracted.

However, a study by Fitch Ratings says the proportion of bundled debt being used as security in repo transactions has returned to pre-crisis levels.

Using the repackaged loans can increase risk in the repo market, the rating agency says. This is because the securities may be prone to sudden pullbacks such as the one experienced in 2008.

We could be looking at another banking collapse at any time; and to fix the problem, we first need to know what is going on.  The AGs should not agree to drop the curtain on the robo-signing scandal until all the evidence is on the table.  It is not just a matter of punishing the guilty; it is a matter of a banking scheme based on fraud, one that ultimately does not work and has jeopardized the homes, savings and investments of the public not just recently but for hundreds of years.

The Way Out

There is another way to design a banking system.  The deposits of large institutional investors do not need to be backed by sliced and diced pieces of our homes to be “safe” (something that has proven not to be safe at all).  The large institutional investors seeking safety are largely “us” – the pension funds and mutual funds in which we have stored our savings and on which we rely for support when we can no longer work.  Hundreds of years of history have demonstrated that the only reliable guarantor is the government itself.

Our pension funds and mutual funds need a government guarantee just as much as our individual deposits do.  But we don’t want to be guaranteeing the gambling and derivatives schemes of too-big-to-fail, for-profit Wall Street banks playing fast and loose with our money.  Banking and credit need to be public utilities, operated for the benefit of the public in plain sight of the public.

It is absolutely confounding how liberals have repeatedly fallen for this president. He has thrived off of vague pronouncements and innuendo, only making concrete political promises on issues with overwhelming popular support, at which point he generally manufactures some semblance of fight before rolling over dead in quick order. How many years of this before the Michael Moores of the world get it? The problem is not that the president’s hands are tied by an overzealous Republican establishment; rather, he is confined to a contrived role in a rigged political act designed to mimic representative democracy. The script goes like this: he postures as the people’s president, while the opposition scolds him as being a liberal elitist. Then, they bicker about all things innocuous, while carrying on unabated with the core business of shredding the constitution, stifling dissent, and maintaining the Empire. Obama’s new vaguely populist rhetoric and seemingly forceful tone is all a bad rerun. The Washington Post declared this to be the emergence of “Obama 2.0,” , but they got it wrong. It’s all the same Hope and Change Pony Show.

With each year of Obama’s successful duping of the liberal establishment, the center-point of accepted political opinion gets driven further to the right. In this address, he bills his two greatest accomplishments as getting Bin Laden and saving GM: an extrajudicial murder and a bailout conditioned with wage and benefit reductions for future employees. He blithely touted his circumvention of international law and due process in the bin Laden killing. Meanwhile, he goes on to trumpet his saber rattling vis-à-vis Iran, and his illegal use of drones in Pakistan and Yemen, while speaking of an “ironclad – and I mean Ironclad” relationship to the contemptible regime in Israel. It is quite disconcerting to know that respected “liberal” commentators could characterize a speech as “populist” despite all of this dastardly retrograde rhetoric.

The praise did not stop with Michael Moore. David Corn from the once respectable Mother Jones had this to say: “Obama is pitching a patriotic, quasi-populist progressivism (while conceding the need for deficit reduction and government cost-efficiencies).:  Either he doesn’t quite get the concept of “quasi” or we can count him in the ranks of the duped. In his coverage on Twitter he said: “Progressives can get too bogged down in critique. Obama showed how to criticize while reaching higher.” While it is difficult to discern from a 140-letter tweet, the thrust of this statement seems to be that far-reaching critiques are not acceptable. His reasoning goes that ideologues are archaic and inherently divisive. Anyone who breaks with the theme of unity is a party pooper. In taking this line, the president and his supporters conflate reasoned dissent with the knee-jerk rejectionist posture of the outrageous Republican establishment. Those that demand “too much” of the president are viewed with equal contempt by the increasingly base liberal establishment.

What these candy-ass liberals fail to understand is that we cannot be united with a 1% whose recklessness and avidity knows no bounds. The super-rich have unequivocally demonstrated that their interests lie elsewhere. They have spent decades lobbying for deregulation and trade “liberalization” that has allowed them to displace millions of American jobs while reducing the quality of millions of others. Meanwhile, they preyed on working Americans with their sub-prime and Adjustable Rate Mortgages, and then shook the whole house of cards by repackaging those lousy investments into fancy financial instruments, thus provoking a recession that is ongoing for most of the 99% of us. The Occupy Movement grew out of rage against these monsters, not out of any desire to move in with them. A responsive and thoughtful president would be railing against them, not tidily talking about a “togetherness” that the 1% has incessantly rejected.

Nonetheless, liberals will argue that the president adequately addressed inequality with his token references to economic fairness and his advocacy of a Buffet Tax. The latter proposal is quite clearly a ploy on his part, as he knows the Republican congress would never seriously consider it. He gets to posture as a liberal without ever having to actually enact a progressive measure, per the norm. If he really had any desire to equalize the tax code, he could have done it during his first two years, when he had a strong party majority in both houses of Congress. Meanwhile, if he had the determination, he could ram through such legislation in the current climate of populist upheaval, despite the current Congress of stooges and charlatans. However, it would be extremely naïve to expect the president to suddenly cease being the servile sort that he is.

One could reasonably argue that the proposal to establish a “Financial Crimes Unit” amounts to a progressive initiative that is praiseworthy. Indeed, one cannot imagine a Republican president bothering with such a measure. However, Obama is merely building on what has been a very minimal response to the financial crisis thus far. The Dodd-Frank Wall Street Reform bill barely began to scratch the surface: its primary purpose so far being that it provides government with alternative avenues to taxpayer bailouts should banks face liquidity issues in the future. The more far-reaching and prescient reforms, such as resurrection of Glass-Steagall and breaking up the monolithic corporate banks, have not been serious policy considerations by this administration.

That makes two progressive-leaning proposals, delivered in the president’s typically vague form, all set for future abandonment. Meanwhile, you can add his support for fracking and “school choice” to the list of regressive positions in this State of the Union. On the former issue, he calls for an ambitious increase in the refinement of natural gas. Despite widespread documentation of the hazards  posed to drinking water and the preponderance of disease in and around gas fields, Obama decided to tell the nation:

The development of natural gas will create jobs and power trucks and factories that are cleaner and cheaper, proving that we don’t have to choose between our environment and our economy.

On “school choice,” a moniker for school privatization via charters or vouchers, he elicits inspiration from his home-state’s treasured political icon: “I believe what Republican Abraham Lincoln believed: That Government should do for people only what they cannot do better by themselves, and no more. That’s why my education reform offers more competition, and more control for schools and States.” Here, he is merely repeating talking points directly from corporate lobbyists that have used school choice as cover for their efforts to attack public schools, break up teachers unions, and to maliciously profit from the newly burgeoning education “industry.” Obama does suggest willingness to “stop teaching to the test,” though this is probably more of his vacuous pandering to common progressive causes.  He might make a half-hearted effort at some aesthetic change, but will do nothing to stave off the ongoing looting of the public schools. With Arne Duncan, the old Chicago Charter School champion, still serving as Secretary of Education, it is tough to imagine any diversion from the current privatization thrust.

The only rational conclusion from this year’s speech is that this is, indeed, the same old Obama. This is the same unrepentant militarist that was elected in 2008, the same prosecutor of illegal wars in Pakistan, Libya, Somalia and Yemen; the same authoritarian that signed the NDAA, thus codifying his immoral and unconstitutional detention powers; the same murderer of American civilians: the president who has dutifully played his role as supervisor of this descendant and morally decaying power. As this has yet to become a full-fledged dictatorship, the president must appeal to his subjects’ finer sensibilities on occasion. In this, he excels. Even after three years of the same old dog and pony show, he is still proving adept at duping the diffident liberal mainstream.