Tuesday, October 13, 2009

Michael Moore’s “Capitalism: A Love Story” And Additional Economic Commentary.

Michael Moore’s “Capitalism: A Love Story” And Additional Economic Commentary.

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Mike's Blog #1: 'Pilots on Food Stamps'

This w eek, the new 'Mike & Friends Blog' section will be added to MichaelMoore.com. In additional to my blog, I have asked a few people, like Rep. Marcy Kaptur (the Democrat from Toledo who has deservedly become the star of my movie!) and Leah Fried (who helped organize the sit-down strike at Republic Windows and Doors in Chicago), to blog here on my site. Here's a sneak peek of my first blog post. Enjoy! -- MM

Pilots on Food Stamps
By Michael Moore

We're on the descent from 20,000 feet in the air when the flight attendant leans over the elderly woman next to me and taps me on the shoulder.

"I'm listening to Lady Gaga," I say as I remove just one of the ear buds. I know not this Lady Gaga, but her performance last week on SNL was fascinating.

"The pilots would like to see you in the cockpit when we land," she says with a southern drawl.

"Did I do something wrong?"

"No. They have something to show you." (The last time an employee of an airline wanted to show me something it was her written reprimand for eating an in-flight meal without paying for it. "Yes," she said, "we have to pay for our own meals on board now.")

The plane landed and I stepped into the cockpit. "Read this," the first officer said. He handed me a letter from the airline to him. It was headlined "LETTER OF CONCERN." It seems this poor fellow had taken three sick days in the past year. The letter was a warning not to take another one -- or else.

"Great," I said. "Just what I want -- you coming to work sick, flying me up in the air and asking to borrow the barf bag from my seatback pocket."

He then showed me his pay stub. He took home $405 this week. My life was completely and totally in his hands for the past hour and he's paid less than the kid who delivers my pizza.

I told the guys that I have a whole section in my new movie about how pilots are treated (using pilots as only one example of how people's wages have been slashed and the middle class decimated). In the movie I interview a pilot for a major airline who made $17,000 last year. For four months he was eligible -- and received -- food stamps. Another pilot in the film has a second job as a dog walker.

"I have a second job!," the two pilots said in unison. One is a substitute teacher. The other works in a coffee shop. You know, maybe it's just me, but the two occupations whose workers shouldn't be humpin' a second job are brain surgeons and airline pilots. Call me crazy.

I told them about how Capt. "Sully" Sullenberger (the pilot who safely landed the jet in the Hudson River) had testified in Congress that no pilot he knows wants any of their children to become a pilot. Pilots, he said, are completely demoralized. He spoke of how his pay has been cut 40% and his own pension eliminated. Most of the TV news didn't cover his remarks and the congressmen quickly forgot them. They just wanted him to play the role of "HERO," but he was on a more important mission. He's in my movie.

"I hadn't heard anywhere that this stuff about the airlines is in this new movie," the pilot said.

"No, you wouldn't," I replied. "The press likes to talk about me, not the movie."

And it's true. I've been surprised (and slightly annoyed) that, with all that's been written and talked about "Capitalism: A Love Story," very little attention has been paid the mind-blowing stuff in the film: pilots on food stamps, companies secretly taking out life insurance policies on employees and hoping they die young so the company can collect, judges getting kickbacks from the private prison industry for sending innocent people (kids) to be locked up. The profit motive -- it's a killer.

Especially when your pilot started his day at 6am working at the local Starbucks.

Michael Moore on 'Capitalism,' Democracy and Weight Loss


A Review of the Movie “Capitalism A Love Story

By Herbert Calhoun (about the author) opednews.com Permalink

For OpEdNews: Herbert Calhoun - Writer

After several books and movies, the verdict is finally in on Michael Moore: He stirs up the pot, pitches a “one man hissy fit,” jumping up and down for media attention like the signifying monkey, and then laughs all the way to the bank as he moves on to the next mega-million moneymaking project.

With “Roger Rabbit,” that warned about the impending Detroit meltdown, which occurred on schedule as he had predicted: no one in the U.S. moved a muscle and we all just watched as Detroit sunk to the bottom of lake Michigan. In “Bowling with Columbine,” where with great skill (if lacking subtlety and finesse), he exposed the machination of the gun merchants and their protectors the heavy-handed gun lobbyists. One thought there would be a great national outcry and a final serious move against the gun lobbyists and the weak kneed Congressmen that continue to cower under their threats, yet not a peek out of the still comatose American public. Then, just as our senior citizens were chartering caravans of buses on a Jihad across the border into Canada to purchase the same drugs being charged ten times as much to them in the U.S., came “Sicko:” a devastating critique of the “sickness for profit” system that we call our national health care system, but again, not a solitary growl from the sleeping giant known as the American public?

Now we have “Capitalism: A Love Story,” perhaps the renegade filmmaker's best yet. It is a documentary about how both our present and past Presidents and Congress are “wholly owned subsidiaries” of Goldman and Sachs, and about how the Congress and the last President hijacked the economy under a false scare that they themselves had conjured up (with “credit default swaps” and other nonsensical financial derivatives). This carefully engineered economic meltdown was only different in scope from the ones they had engineered about two decades before: first in the Keating-McCain scandal and then in the Burt Lance-Jimmy Carter BCCI scandal.

It was also about now they and their lobbyist's friends continue to screw the nation in both the front (with the Obama bailout and the second healthcare mess) and in the rear (with offshore tax dodges, insurance policies on employees, tax cuts for the rich, obscene salaries and golden parachutes for themselves, but only low wages and outsourcing and down-sizing for everyone else -- but of course all in the name of all our most cherished patriotic symbols. Never has there been a more thorough and devastating critique of the way the American middle class, the American farmer, the American poor, and the American homeowner, have been screwed by the greedy money-hungry “drive-by” criminals running the Congress and Wall Street. Yet, I am going to go out on a limb and predict that nothing will happen as a result of this fine film, either.

Why is it the case that when Michael Moore tells the unvarnished truth about what is happening right before our own eyes, no one seems to care? It can't just be that they don't like Moore's brand of politics, because the nation is divided right down the middle between liberals and conservatives (excuse me, between “progressives” and conservatives), so that can't be the underlying reason. It also can't be that Michael is just another capitalist himself with a capital “C.” The movie and Moore avowedly are not against capitalism, just against the kind of “vampire capitalism” and unregulated “casino capitalism” being perpetrated against the American people today by the Wall Street crowd.

Thus, I believe the reason goes much deeper and suggests that we are now “in a fix” we may never be able to extricate ourselves from.

The grid of parallel fault lines making up the sectors that divide the country have now been Balkanized to the max. There are no more ways remaining by which we further can be divided as a people. As a result, the U.S. has become a virtually ungovernable political entity. And this is exactly what the greedy criminal Plutocrats (with their Congressional and Presidential lap dogs) have been angling towards, since FDR's New Deal. They have achieved their goal.

There is no longer a “common good,” only “special interests.” And whose interests are the most special of all? Guess? All the real democrats (little “d”) hate each other's guts and would rather see the country fall than yield one narrow ideological point to another side.

All the Balkanized sectors are at right angles to each other. There is no overlap. It's a multidimensional zero-sum game in every direction.

That basically is where our democracy is today, and that's very sad. In the mean time, we elected Obama as the change candidate (that is to say, we only elected him to get rid of the village idiot, that was the change we were all most seeking) and he has distinguished himself by showing us how to “duck and dodge” all of the issues that divide us.

What else can the poor guy do? Become a real leader, god forbid?

Did we forget, that that is not what he promised, he didn't promise leadership, just change. Well, how does that saying go: If it walks like a duck, quacks like a duck, smells like a duck, and ducks like a duck, it is, as Reverend Wright said: Just another Chicago politician. And as Hillary reminded us, he can give a good speech. I am beginning to dislike Obama's “slipping and sliding” as much as I disliked Bush's incompetence, and I am a black man.

Oh, we already know what will happen should “Capitalism: A Love Story” begin to really threaten to gain traction.

The Plutocrats will circle the wagons and roll out their first line of defense, the racist “intellectually challenged” rightwing media pundits like Limbaugh, Beck and Dobbs. Should the concerned and aware American public then began to wake up and see through this emotional smoke screen (which they rarely do) there still will be graft to spread around on the Hill like cow manure to our “morally challenged” Congressmen, most of whom have yet to see a bag of money or a campaign contribution they could refuse.

As a last resort, they will saturate the executive office with a revolving door list of Wall Street's “who's who” in the world of how to screw the American people. And failing that, they can always find somewhere else to start another false war of necessity.

Unless we get up off our duffs, and Obama starts showing some real leadership, we are definitely looking at a one-term Obama Presidency, and then four years of another conservative village idiot, maybe even Sarah Palin. (Jesus, please deliver me from this mess! Amen) The movie is clearly a four star effort.

Retired Foreign Service Officer and past Manager of Political and Military Affairs at the US Department of State. For a brief time an Assistant Professor of International Relations at the University of Denver and the University of Washington at (more...)

Finally, An Understandable Explanation Of Derivative Markets

Heidi is the proprietor of a bar in Detroit. In order to increase sales, she decides to allow her loyal customers - most of whom are unemployed alcoholics - to drink now but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around about Heidi's drink now pay later marketing strategy and as a result, increasing numbers of customers flood into Heidi's bar and soon she has the largest sale volume for any bar in Detroit. By providing her customers' freedom from immediate payment demands, Heidi gets no resistance when she substantially increases her prices for wine and beer, the most consumed beverages. Her sales volume increases massively.

A young and dynamic vice-president at the local bank recognizes these customer debts as valuable future assets and increases Heidi's borrowing limit. He sees no reason for undue concern since he has the debts of the alcoholics as collateral.

At the bank's corporate headquarters, expert traders transform these customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS. These securities are then traded on security markets worldwide.

Naive investors don't really understand the securities being sold to them as AAA secured bonds are really the debts of unemployed alcoholics. Nevertheless, their prices continuously climb, and the securities become the top-selling items for some of the nation's leading brokerage houses who collect enormous fees on their sales, pay extravagant bonuses to their sales force, and who in turn purchase exotic sports cars and multimillion dollar condominiums.

One day, although the bond prices are still climbing, a risk manager at the bank (subsequently fired due to his negativity), decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi's bar.

Heidi demands payment from her alcoholic patrons, but being unemployed they cannot pay back their drinking debts. Therefore, Heidi cannot fulfill her loan obligations and claims bankruptcy. DRINKBOND and ALKIBOND drop in price by 90 %. PUKEBOND performs better, stabilizing in price after dropping by 80 %. The decreased bond asset value destroys the banks liquidity and prevents it from issuing new loans.

The suppliers of Heidi's bar, having granted her generous payment extensions and having invested in the securities are faced with writing off her debt and losing over 80% on her bonds. Her wine supplier claims bankruptcy, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 50 workers.

The bank and brokerage houses are saved by the Government following dramatic round-the-clock negotiations by leaders from both political parties. The funds required for this bailout are obtained by a tax levied on employed middle-class non-drinkers.

For all the Parrot Pundits and Media Moronic News Readers, the flock following ignorant masochists and ideological idiots; The “Recession” (The Manipulated, Managed Depression) is not over. We Are not emerging into the new day, the new dawn,the new worldwide economy.

We are yet engaged in the battle against the forces that have brought us down.

They are determined to resist all change and all re-regulation.

The USA most would rather repay their stimulus debts than face examination and exposure.

We are still sinking and drowning. How do you have a recovery, a reconstruction in the debris of the collapse with 10% employment as the standard for our new way of life without legal structures to regulate and prosecute the corporate criminals that have raped this nation and have who declared their intentions to preserve that right?

Grand Theft Economics

Dollar Reaches Breaking Point as Banks Shift Reserves (Update3)

By Ye Xie and Anchalee Worrachate

Oct. 12 (Bloomberg) -- Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarterrout in almost two decades.

Policy makers boosted foreign currency holdings by $413 billion last quarter, the most since at least 2003, to $7.3 trillion, according to data compiled by Bloomberg. Nations reporting currency breakdowns put 63 percent of the new cash into euros and yen in April, May and June, the latest Barclays Capital data show. That’s the highest percentage in any quarter with more than an $80 billion increase.

World leaders are acting on threats to dump the dollar while the Obama administration shows a willingness to tolerate a weaker currency in an effort to boost exports and the economy as long as it doesn’t drive away the nation’s creditors. The diversification signals that the currency won’t rebound anytime soon after losing 10.3 percent on a trade-weighted basis the past six months, the biggest drop since 1991.

“Global central banks are getting more serious about diversification, whereas in the past they used to just talk about it,” said Steven Englander, a former Federal Reserve researcher who is now the chief U.S. currency strategist at Barclays in New York. “It looks like they are really backing away from the dollar.”

Sliding Share

The dollar’s 37 percent share of new reserves fell from about a 63 percent average since 1999. Englander concluded in a report that the trend “accelerated” in the third quarter. He said in an interview that “for the next couple of months, the forces are still in place” for continued diversification.

America’s currency has been under siege as the Treasury sells a record amount of debt to finance a budget deficit that totaled $1.4 trillion in fiscal 2009 ended Sept. 30.

Intercontinental Exchange Inc.’s Dollar Index, which tracks the currency’s performance against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, fell to 75.77 last week, the lowest level since August 2008 and down from the high this year of 89.624 on March 4. The index, at 76.104 today, is within six points of its record low reached in March 2008.

Foreign companies and officials are starting to say their economies are getting hurt because of the dollar’s weakness.

Toyota’s ‘Pain’

Yukitoshi Funo, executive vice president of Toyota City, Japan-based Toyota Motor Corp., the nation’s biggest automaker, called the yen’s strength “painful.” Fabrice Bregier, chief operating officer of Toulouse, France-basedAirbus SAS, the world’s largest commercial planemaker, said on Oct. 8 the euro’s 11 percent rise since April was “challenging.”

The economies of both Japan and Europe depend on exports that get more expensive whenever the greenback slumps. European Central Bank PresidentJean-Claude Trichet said in Venice on Oct. 8 that U.S. policy makers’ preference for a strong dollar is “extremely important in the present circumstances.”

“Major reserve-currency issuing countries should take into account and balance the implications of their monetary policies for both their own economies and the world economy with a view to upholding stability of international financial markets,” China President Hu Jintao told the Group of 20 leaders in Pittsburgh on Sept. 25, according to an English translation of his prepared remarks. China is America’s largest creditor.

Dollar’s Weighting

Developing countries have likely sold about $30 billion for euros, yen and other currencies each month since March, according to strategists at Bank of America-Merrill Lynch.

That helped reduce the dollar’s weight at central banks that report currency holdings to 62.8 percent as of June 30, the lowest on record, the latest International Monetary Fund data show. The quarter’s 2.2 percentage point decline was the biggest since falling 2.5 percentage points to 69.1 percent in the period ended June 30, 2002.

“The diversification out of the dollar will accelerate,” said Fabrizio Fiorini, a money manager who helps oversee $12 billion at Aletti Gestielle SGR SpA in Milan. “People are buying the euro not because they want that currency, but because they want to get rid of the dollar. In the long run, the U.S. will not be the same powerful country that it once was.”

Central banks’ moves away from the dollar are a temporary trend that will reverse once the Fed starts raising interest rates from near zero, according toChristoph Kind, who helps manage $20 billion as head of asset allocation at Frankfurt Trust in Germany.

‘Flush’ With Dollars

“The world is currently flush with the U.S. dollar, which is available at no cost,” Kind said. “If there’s a turnaround in U.S. monetary policy, there will be a change of perception about the dollar as a reserve currency. The diversification has more to do with reduction of concentration risks rather than a dim view of the U.S. or its currency.”

The median forecast in a Bloomberg survey of 54 economists is for the Fed to lift its target rate for overnight loans between banks to 1.25 percent by the end of 2010. The European Central Bank will boost its benchmark a half percentage point to 1.5 percent, a separate poll shows.

America’s economy will grow 2.4 percent in 2010, compared with 0.95 percent in the euro-zone, and 1 percent in Japan, median predictions show. Japan is seen keeping its rate at 0.1 percent through 2010.

Central bank diversification is helping push the relative worth of the euro and the yen above what differences in interest rates, cost of living and other data indicate they should be. The euro is 16 percent more expensive than its fair value of $1.22, according to economic models used by Credit Suisse Group AG. Morgan Stanley says the yen is 10 percent overvalued.

Reminders of 1995

Sentiment toward the dollar reminds John Taylor, chairman of New York-based FX Concepts Inc., the world’s largest currency hedge fund, of the mid-1990s. That’s when the greenback tumbled to a post-World War II low of 79.75 against the yen on April 19, 1995, on concern that the Fed wasn’t raising rates fast enough to contain inflation. Like now, speculation about central bank diversification and the demise of the dollar’s primacy rose.

The currency then gained 26 percent versus the yen and 25 percent against the deutsche mark in the following two years as technology innovation increased U.S. productivity and attracted foreign capital.

“People didn’t like the dollar in 1995,” said Taylor, whose firm has $9 billion under management. “That was very stupid and turned out to be wrong. Now, we are getting to the point that people’s attitude toward the dollar becomes ridiculously negative.”

Dollar Forecasts

The median estimate of more than 40 economists and strategists is for the dollar to end the year little changed at $1.47 per euro, and appreciate to 92 yen, from 89.97 today.

Englander at London-based Barclays, the world’s third- largest foreign-exchange trader, predicts the U.S. currency will weaken 3.3 percent against the euro to $1.52 in three months. He advised in March, when the dollar peaked this year, to sell the currency. Standard Chartered, the most accurate dollar-euro forecaster in Bloomberg surveys for the six quarters that ended June 30, sees the greenback declining to $1.55 by year-end.

The dollar’s reduced share of new reserves is also a reflection of U.S. assets’ lagging performance as the country struggles to recover from the worst recession since World War II.

Lagging Behind

Since Jan. 1, 61 of 82 country equity indexes tracked by Bloomberg have outperformed the Standard & Poor’s 500 Index of U.S. stocks, which has gained 18.6 percent. That compares with 70.6 percent for Brazil’s Bovespa Stock Index and 49.4 percent for Hong Kong’s Hang Seng Index.

Treasuries have lost 2.4 percent, after reinvested interest, versus a return of 27.4 percent in emerging economies’ dollar- denominated bonds, Merrill Lynch & Co. indexes show.

The growth of global reserves is accelerating, with Taiwan’s and South Korea’s, the fifth- and sixth-largest in the world, rising 2.1 percent to $332.2 billion and 3.6 percent to $254.3 billion in September, the fastest since May. The four biggest pools of reserves are held by China, Japan, Russia and India.

China, which controlled $2.1 trillion in foreign reserves as of June 30 and owns$800 billion of U.S. debt, is among the countries that don’t report allocations.

“Unless you think China does things significantly differently from others,” the anti-dollar trend is unmistakable, Englander said.

Follow the Money

Englander’s conclusions are based on IMF data from central banks that report their currency allocations, which account for 63 percent of total global reserves. Barclays adjusted the IMF data for changes in exchange rates after the reserves were amassed to get an accurate snapshot of allocations at the time they were acquired.

Investors can make money by following central banks’ moves, according to Barclays, which created a trading model that flashes signals to buy or sell the dollar based on global reserve shifts and other variables. Each trade triggered by the system has average returns of more than 1 percent.

Bill Gross, who runs the $186 billion Pimco Total Return Fund, the world’s largest bond fund, said in June that dollar investors should diversify before central banks do the same on concern that the U.S.’s budget deficit will deepen.

“The world is changing, and the dollar is losing its status,” said Aletti Gestielle’s Fiorini. “If you have a 5- year or 10-year view about the dollar, it should be for a weaker currency.”

To contact the reporters on this story: Ye Xie in New York atyxie6@bloomberg.net; Anchalee Worrachate in London ataworrachate@bloomberg.net

In Wake Of IMF Meeting | Dollar Plunge Highlights Fault Lines In Global Economic “Recovery”

By Barry Grey 10 October 2009

The US dollar fell to a 14-month low against other currencies Thursday, capping several days of downward volatility in the immediate aftermath of the semi-annual meetings of the International Monetary Fund (IMF) and World Bank, held in Istanbul.

The US currency, down 11.9 percent against a basket of currencies since President Barack Obama took office, fell an additional 0.7 percent on Thursday. Central banks in South Korea, Taiwan, the Philippines, Thailand, Indonesia and Hong Kong intervened to slow the dollar’s fall against their currencies.

In tandem with the fall in the dollar, gold prices soared to new records, hitting $1,056 an ounce on some futures markets.

Late Thursday, Federal Reserve Chairman Ben Bernanke stated that the US will have to raise interest rates once the economy has “sufficiently improved.” Although he gave no indication as to when that might be, his intervention had the desired effect of enabling the dollar to recover some of its losses.

The downward drift of the dollar had accelerated Tuesday, the first official day of the IMF meeting, after the British Independent newspaper published a report that secret discussions had been held between Arab oil-exporting countries and China, France, Japan and Russia on replacing the dollar with a basket of currencies for trade in oil. Most of the governments named subsequently denied the report.

Another factor in the burst of speculation against the dollar was the decision of the Australian central bank, announced Tuesday, to raise interest rates.

The increased pressure on the dollar is a telling sign of the systemic nature of the economic crisis and the heightened tensions among the major world economic powers. It provides a stark contrast to the official declarations coming from the IMF meeting forecasting a return to economic growth—albeit at a snail’s pace—and promising a new era of global economic collaboration and governance.

The weakening of the dollar reflects the breakdown of the global capitalist economic order that emerged after World War II, which was based on the unchallenged economic dominance of the US. Last year’s Wall Street crash and resulting global recession highlighted the immense decline in the world economic position of American capitalism and further compromised the prestige and influence of the US in world economic affairs.

Washington, however, is seeking to leverage its exploding budget deficit and soaring national debt—fueled in large part by trillions of dollars in government subsidies to Wall Street—to place the burden of the economic crisis on its major competitors. Its chief creditors, such as China and Japan, are increasingly concerned over the devaluation of their dollar holdings, but terrified at the prospect of a collapse of the dollar.

In order to boost US exports at the expense of rivals whose economies are highly dependent on exports, such as China, Japan and Germany, Washington has been tacitly favoring a steady fall in the dollar, which has the effect of cheapening US exports and making imports more expensive. This nationalist policy has already increased international tensions and runs the risk of leading to a full-blown dollar crisis, with devastating consequences for both the US and world economy. It is also further undermining the privileged position of the dollar as the major world reserve and trading currency.

Last week, World Bank President Robert Zoellick warned, “The United States would be mistaken to take for granted the dollar’s place as the world’s predominant reserve currency. Looking forward, there will increasingly be other options to the dollar.”

The Wall Street Journal, in a Friday editorial entitled “The Dollar Adrift,” bitterly commented: “The Fed is telling the world that it is concerned primarily—perhaps only—with the domestic US economy. If the dollar falls against other currencies, that’s their problem…

“The more immediate danger—in the coming months—would be if the fall of the dollar becomes a rout… But even if there is no dollar panic, the volatility of currency markets…could also lead to a round of competitive devaluations, as other nations try to placate their own domestic export constituencies.”

The IMF at its Istanbul meeting notably ignored the increasingly contentious question of US monetary policy. This was in keeping with an effort—reflected last month at the G20 summit of leading world economies in Pittsburgh and continued at this week’s IMF and World Bank meetings—to paper over growing trade and economic conflicts and promote vague guidelines for reviving the world economy and staving off another collapse.

In its latest forecast, the IMF estimates that global economic output will decline 1.1 percent this year and rise 3.1 percent in 2010. The projected growth for 2010 is far below pre-crisis rates and implies a continued rise in unemployment and poverty.

Moreover, the anemic growth that is projected is largely dependent on massive state subsidies to the banks and other stimulus measures, totaling thus far, according to the IMF, $2 trillion worldwide. No one knows what will happen when governments begin to pull back from these subsidies, which are fueling staggering and unsustainable levels of debt, stoking protectionist measures, and raising the specter of state bankruptcies.

At the meeting, the IMF endorsed the decision of the G20 summit to make the G20, which includes major “emerging” countries such as China, India and Brazil in addition to the established industrialized countries grouped in the G7, the chief forum for international economic collaboration.

The IMF also endorsed the “Framework for Strong, Sustainable and Balanced Growth” that was adopted at the G20 meeting. This plan, pushed by the United States over the resistance of economic rivals, principally Germany and China, calls for debtor countries, such as the US, to reduce their deficits by slashing domestic consumption and increasing their exports, and for surplus countries, such as China, Japan and Germany, to cut their surpluses by increasing domestic demand and carrying out structural “reforms,” including the gutting of remaining protections for workers, to further open their markets to US and international investment.

China, Germany and other countries signed on to the “framework” only because it avoids any sanctions or enforcement mechanisms against countries that fail to make the proposed changes. The IMF is assigned the job of providing analysis to facilitate the use of “peer pressure” to bring countries into line.

Notwithstanding formal agreement, the plan is widely seen as an attempt by the US to impose the brunt of its crisis on its rivals.

Another major component of the “framework” is an increase in the voting power within the IMF of emerging economies by “at least” 5 percent. This proposal sparked bitter resistance from Germany and France, which stand to see their influence within the IMF reduced.

At its meeting this week, the IMF endorsed the 5 percent increase in voting power for emerging countries, but put off any concrete proposal to implement it until January of 2011. As the New York Times commented, “This leaves ample room for friction between IMF members that stand to gain in influence and those losing it, as well as within the community of advanced countries.

“European countries, including France and Germany, are already quietly maneuvering to preserve their own leverage, possibly at the expense of their neighbors.

“Also, the IMF did not address one of the most contentious issues, that of the effective United States veto at the organization. With a 17 percent voting share in a body that requires 85 percent for major decisions, the United States can block any significant move.”

A third plank of the G20 “framework” endorsed by the IMF is tougher global regulation of the banks. The adopted recommendations, however, include no enforcement mechanisms or sanctions. At the G20, the US defeated proposals from France and Germany to impose caps on bankers’ compensation.

Commenting on this aspect of the recovery framework, the Financial Timesnoted on Tuesday that US banks have blocked all serious proposals to increase regulation, and concluded: “In short, an overhaul of international standards of bank regulation remains a clear but highly uncertain goal. It involves curbs on enormously wealthy individuals and institutions whose political influence appears as strong as it was before the credit crisis hit in 2007.”

While no measures are to be taken to rein in the speculative practices of the banks, the impact of the crisis which they precipitated is profound and spreading. The IMF reports that a staggering 10 percent of global output has been lost due to the crisis and will not be recovered. This means that the world’s population has grown significantly poorer.

The World Bank estimates that the crisis has thrown another 90 million people into “extreme poverty,” living on less than $1.25 a day.

According to the Organization for Economic Cooperation and Development, joblessness has already reached a high since World War II of 8.5 percent in the 30 high-income OECD countries. It warns that unemployment could rise further to nearly 10 percent in the developed world by the end of next year, meaning 25 million people will have lost their jobs since the recession began.

Noting the especially severe impact on young workers, the OECD speaks of the risk of a “lost generation.”

For its part, the IMF is warning of the likelihood of a “jobless recovery.” Many prominent economists predict that unemployment will not fall to pre-crisis levels until 2015 at the earliest. IHS Global Insight forecasts that unemployment in the US will still be at 8.1 percent in 2013.

As for the much vaunted restabilization of the financial system, the IMF estimates that total losses and write-downs within banks, insurers, hedge funds and other financial firms will amount to $2.8 trillion between 2007 and 2020 in the US, Europe and Asia. This represents 5 percent of all loans and securities held by these institutions. As only half of these losses have to date been acknowledged, the global financial system remains poised on the brink of a precipice.

IMF Managing Director Dominique Strauss-Kahn hailed this week’s meeting as “a unique opportunity to reshape the post-crisis world, to usher in a new era of collaborative global governance.”

Other prominent commentators were far less sanguine. The Chinese web siteXinhuanet.com wrote: “Unlike the rapidly-spreading and powerful crisis, the recovery is set to be slow and fragile. Financial markets remain far from stable, jobs are still diminishing, protectionism is on an alarming rise and poverty is exacerbated in low-income countries.”

Michael Geoghegan, chief executive of HSBC bank, told the Financial Timesthat he anticipated a new downturn in the coming months. Posing the question of whether the world was in a “V recovery or a W,” he said, “It’s the latter.”

Billionaire investor George Soros said in Istanbul that the US banks were “basically bankrupt,” and their insolvency would impede any significant recovery.

New York University Professor Nouriel Roubini, who predicted the market crash of last year, warned in an interview, “Markets have gone up too much, too soon, too fast.” Noting that stock markets have soared by around 50 percent since their lows last March, he added, “The real economy is barely recovering while markets are going this way.”

He warned that “easy money” had already created “asset bubbles in equities, commodities, credit and emerging markets,” and concluded, “… we may be planting the seeds of the next cycle of financial instability.”

Robert Prechter, founder of Elliott Wave International Inc., predicted that the Standard & Poor’s 500 Index would probably fall “substantially below” its 12-year low reached on March 9.

In an October 6 editorial entitled “Picking Through Economic Wreckage,” theFinancial Times asked who would pay for the colossal loss of economic output. The answer was indicated by Carlo Cottarelli and Jose Vinals, two IMF staff economists, who wrote: “Addressing the fiscal problem will require clarity of intent and firm political resolve: health and pension entitlement reforms, cuts in the ratio between other spending and GDP, and tax increases will be necessary.”

In other words, the international working class is to pay for the crisis.

The author also recommends:

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Derivatives Lobby Links With New Democrats to Blunt Obama Plan

By Dawn Kopecki, Matthew Leising and Shannon D. Harrington

Oct. 9 (Bloomberg) -- As President Barack Obama vowed in a Sept. 14 speech in New York’s Federal Hall to correct “reckless behavior and unchecked excess” on Wall Street, Mike McMahonand Barney Frank sat in the audience discussing how to ease proposed rules for the $592 trillion over-the-counter derivatives market.

Side by side at 26 Wall St., across from the New York Stock Exchange, freshman congressman McMahon told House Financial Services Committee Chairman Frank he was worried that Obama’s derivatives plan, released in August, would penalize a wide swath of U.S. corporations and could push jobs in his home district overseas, McMahon said in an interview.

“It’s not just the farmers, and it’s not just the Wall Street guys,” said McMahon, a member of the New Democrat Coalition, a group of 68 self-described pro-growth Democrats in the U.S. House of Representatives. “It’s across the nation. American industry uses these products for a very useful purpose, which keeps down prices and makes consumer products cheaper.”

McMahon said Frank agreed it was important to protect so- called end-users, the corporations that rely on derivatives to hedge everyday operational risk, such as fluctuations in foreign currency rates, interest rates and commodity prices. The Obama plan would subject companies to higher collateral requirements whether they trade standardized or customized contracts. It also calls for most trades to be executed on an exchange or an “alternative swap execution facility.”

‘Working Together’

“He said we’d be working together on this,” said McMahon, who represents a large constituency of Wall Street workers on Staten Island and in southwest Brooklyn. “We never had a philosophical difference.”

It’s not just end-users who won concessions from McMahon and Frank.JPMorgan Chase & Co.,Goldman Sachs Group Inc. and Credit Suisse Group AG lobbied McMahon and fellow New Democrat Coalition member Representative Melissa Bean of Illinois, among others, to expand the ways the legislation allows dealers and major investors to trade the contracts, according to people familiar with the matter.

Bean’s spokesman Jonathan Lipman rejected the notion that the New Democrats made any changes to the bill at the behest of banks.

“New Dems have promoted strong regulatory reform that institutes trade and price reporting, capital requirements, and margin requirements, all of which puts mandates on these institutions that they don’t like,” Lipman said. “New Dems have been focused on increasing transparency, reducing systemic risk, and preserving the ability for end-users to hedge their risk.”

JPMorgan spokesman Justin Perras, Goldman Sachs spokesman Michael DuVally and Credit Suisse spokeswoman Victoria Harmon declined to comment.


The battle over derivatives legislation is a test for the Obama administration’s efforts to tighten financial regulation to prevent a repeat of the financial crisis that shook the global economy -- a crisis exacerbated by derivatives trading.

Frank, a Massachusetts Democrat who rose through the ranks in Congress fighting homelessness and advocating for gay and consumer rights, found his handiwork panned by administration officials after he released draft legislationlast week that they criticized as too friendly to business. Frank’s bill allows for no change in how standardized over-the-counter derivatives are traded as long as they are reported to regulators.

Commodity Futures Trading Commission Chairman Gary Gensler and Henry T.C. Hu of the Securities and Exchange Commission said Frank’s “discussion draft” created too many loopholes and had the potential to exclude all hedge funds and corporate end-users from oversight.

New Democrats

“That’s why it’s called a discussion draft, because it brings forth people’s comments,” Frank said in an interview after an Oct. 7 hearing at which Gensler and Hu testified. “It’s an ongoing process.”

Frank told the committee that he agreed to “tighten up” the legislation before it is voted on next week.

With 68 of the Democrats’ 256 votes in the House, the New Democrats have become a growing force within their party. Democrats hold a 38-member voting majority over Republicans and cannot pass financial legislation without coalition support.

“Oh, they were very important,” Frank said. “A couple of them have some experience in this area. They are also an important part of our caucus.”

Derivatives dealers became concerned that Obama’s plan didn’t adequately define “alternative swap execution facility” and that, in the end, regulators would write rules making them similar to exchanges, people familiar with the lobbying effort said. Over the last two months, the banks pressed to have Frank’s draft allow standardized trades to be executed privately via telephone, as they’ve been traded for decades, as long as they are reported to regulators, the people said.

Shrinking Spreads

The change could protect billions of dollars in profit for the dealers. When securities or derivatives are traded on exchanges -- where investors can see real-time prices, rather than indicative prices sent by e-mail in the over-the-counter market -- it can shrink the amount that dealers make on each trade, known as the spread.

“Having more discretion for the dealers in the regulations gives an extra benefit to them by staying away from narrower spreads,” said Darrell Duffie, a finance professor at Stanford University in California.

The top five U.S. commercial banks, including JPMorgan, Goldman Sachs and Bank of America Corp., were on track through the second quarter to earn more than $35 billion this year trading unregulated derivative contracts, according to a review of company filings with the Federal Reserve and people familiar with the banks’ income sources.

Real-Time Pricing

The banks are arguing that an exchange or trading-system mandate that publicizes large trades could make it too expensive or impossible to execute customer orders and hedge those trades at the same time, according to the people familiar. Publicized large orders may dry up the willingness of dealers and investors to buy or sell contracts, they said.

That argument might not get a sympathetic ear at the Commodity Futures Trading Commission. Its chairman has several times called the regulated platforms “electronic trading systems,” suggesting that U.S. officials may seek to require banks and investors to use them like exchanges with real-time, public pricing.

“People viewed it as tantamount to an exchange,” said Robert Pickel, chief executive officer of the International Swaps and Derivatives Association, a New York-based group that sets standards in OTC derivatives markets.

‘Into the Weeds’

While the concerns were raised through both Republicans and Democrats, “the New Democrats have played a central role here both in terms of interacting with the end-users but also being able to take that concern to Chairman Frank,” Pickel said.

A half dozen New Democrats pressed Treasury Secretary Timothy Geithner to expand the administration’s exemption for end-users in an Oct. 1 meeting.

“We got into the weeds on the derivatives bill,” said Connecticut Representative James Himes, a former investment banker at Goldman Sachs and a member of the New Democrats, who attended the meeting along with McMahon, Bean and chairman Joseph Crowley of New York.

Unlike Obama’s plan, Frank’s bill doesn’t require derivatives users or dealers to execute standardized over-the- counter contracts on a regulated exchange or trading platform, which would force greater price transparency. Instead, it gives them the option to decide if they want to use an exchange or a trading platform, or merely report the transaction to regulators by the end of the day.

Non-Standardized Contracts

Not mandating exchange or other types of electronic trading “will probably prevent spreads from dropping like a rock,” said Kevin McPartland, a senior analyst in New York at Tabb Group, a financial-market research and advisory firm. “There’s no reason, at least that I can see, why anybody would go to an exchange.”

The legislation “recognizes that a lot of derivatives contracts are non-standardized, meaning that IBM has exposure to the yen on a certain timetable that just doesn’t fit into standard exchange-traded contract,” said Himes. “The bill recognizes that some risks are unique. Sometimes you need a custom-made contract that won’t be exchange-traded or clearinghouse-cleared.”

Executives and lobbyists in finance, manufacturing, agriculture and other industries had been pressing lawmakers and administration officials for months before McMahon’s fortuitous seating assignment at Federal Hall.

“We’ve seen a steady parade of all of the big dealers, all of the major money-center banks have come through Congress,” Himes said in an interview.

Derivatives Coalition

The House Agriculture Committee approved legislation in February granting the CFTC or SEC oversight of clearinghouses backing credit-default swaps. It also would have allowed those regulators to suspend trading in the $26 trillion market.

“That acted as a catalyst, and we formed a small group of companies that were interested in this issue,” said Dorothy Coleman, vice president of tax and domestic economic policy at the National Association of Manufacturers in Washington. Momentum continued to build over the next six months as the Obama administration made derivatives reform a key element of its financial regulatory agenda.

The NAM group was joined by members of the U.S. Chamber of Commerce and the Business Roundtable to form the Coalition for Derivatives End-Users. Its 171 members are all non-financial corporations, including brewer MillerCoors LLC, International Business Machines Corp. and tractor-maker Deere & Co.

Letter to Congress

The coalition sent Congress a letter on Oct. 2 saying that some reform proposals “place an extraordinary burden on end- users of derivatives.” Members also met this week with lawmakers and staff on Capitol Hill.

In the end-users coalition, broker-dealers found a powerful ally. Although the two groups say they didn’t coordinate their lobbying, their interests overlapped and many of the concessions won in the bill for end-users ended up benefiting some of the biggest Wall Street banks whose credit-default swaps exacerbated the financial crisis.

“There’s very little sympathy for the plight of money- center banks on Capitol Hill right now,” Himes said.

To contact the reporters on this story: Dawn Kopecki in Washington atdkopecki@bloomberg.com; Matthew Leising in New York atmleising@bloomberg.net; Shannon D. Harrington in New York atsharrington6@bloomberg.net.

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