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Federal Reserve System

From Wikipedia, the free encyclopedia

Federal Reserve System
Federal Reserve System headquarters (Eccles Building)
Washington, D.C.
Ben Bernanke
Central bank of
United States
U.S. dollar
ISO 4217 Code
Base borrowing rate
Public finance
Sources of government revenue
Tax and non-tax revenue
Government policy
Fiscal Monetary Trade Policy mix
Fiscal policy
Tax policy (see taxation series)
Government revenue Government debt
Government spending (Deficit spending)
Budget deficit and surplus
Monetary policy
Money supply Central bank
Gold standard Fiat currency
Trade policy
Balance of trade Tarif Tarif war
Free trade Trade pact
See also
Taxation series Project
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Banking in the United States

Monetary policyThe Federal Reserve System
LendingCredit card
Deposit accountsSavings accountChecking accountMoney
market accountCertificate of deposit
Deposit account insuranceFDIC and NCUA
Electronic funds transfer (EFT)ATM cardDebit cardACHBill
paymentEBTWire transfer
Check Clearing SystemChecksSubstitute checks Check
21 Act
Types of bank charterCredit unionFederal savings bank
Federal savings associationNational bank
The Federal Reserve System (also known as the Federal
Reserve, and informally as The Fed) is the central banking
system of the United States.
**It was created in 1913
**with the enactment of the Federal Reserve Act, and was
**a response to a series of financial panics, particularly
**a severe panic in 1907.[1][2][3]
Over time, the roles and responsibilities of the Federal
Reserve System have expanded and its structure has
Events such as the Great Depression were major factors
leading to changes in the system.[5]
Its duties today, according to official Federal Reserve
documentation, are to
conduct the nation's monetary policy,
supervise and regulate banking institutions,
maintain the stability of the financial system and
provide financial services to depository institutions, the
U.S. government, and foreign official institutions.[6]

The Federal Reserve System's structure is

composed of the
**presidentially appointed Board of Governors (or Federal
Reserve Board), the
**Federal Open Market Committee (FOMC),
**twelve regional Federal Reserve Banks located in major
cities throughout the nation,
**numerous other private U.S. member banks and
**various advisory councils.[7][8][9]
The FOMC is the committee responsible for setting
monetary policy and
consists of
**all seven members of the Board of Governors and
**the twelve regional bank presidents, though
**only five bank presidents vote at any given time.
The responsibilities of the central bank are divided into
several separate and independent parts, some private and
some public.
**The result is a structure that is considered unique among
central banks.
**It is also unusual in that an entity (the United States
Department of the Treasury) outside of the central bank
creates the currency used.[10]
According to the Board of Governors, the Federal Reserve
is independent within government in that
"its decisions do not have to be ratified by the President or
anyone else in the executive or legislative branch of
**its authority is derived from the U.S. Congress and is

subject to congressional oversight. Additionally,

**the members of the Board of Governors, including its
chairman and vice-chairman, are chosen by the President
and confirmed by Congress.
The government also exercises some control over the
Federal Reserve by appointing and setting the salaries of
the system's highest-level employees.
Thus the Federal Reserve has both private and public
The U.S. Government receives all of the system's annual
profits, after a statutory dividend of 6% on member banks'
capital investment is paid, and an account surplus is
maintained. The Federal Reserve transferred a record
amount of $45 billion to the U.S. Treasury in 2009.[12]
Central banking in the United States
Main article: History of central banking in the United
**The first paper money issued in the United States was by
the Massachusetts Bay Colony in 1690.
Soon other colonies began printing their own money as
well. The demand for currency in the colonies was due to
the scarcity of coins, which had been the primary means of
trade at the time.[13]
A colony's currency was used to pay for its expenses, as
well as a means to loan money to the colony's citizens.
The bills quickly became the primary means of exchange
within the colonies, and were even used in financial
transactions with other colonies.[14] However, some
currencies were not redeemable in gold and silver, which
caused their value to depreciate quickly.[13]

**The first attempt at a national currency was during the

American Revolutionary war. In 1775 the Continental
Congress issued paper currency, and called their bills
"Continentals". But the money was not backed by gold or
silver and its value depreciated quickly.[13]
**In 1791, which was after the U.S. Constitution was
ratified, the government granted the First Bank of the
United States a charter to operate as the U.S.'s central
bank until 1811.[13]
Unlike the prior attempt at a centralized currency, the
increase in the federal government's powergranted to it
by the constitutionallowed national central banks to
possess a monopoly on the minting of U.S currency.[15]
**The First Bank of the United States came to an end when
President Madison refused to renew its charter.
The Second Bank of the United States met a similar fate
under President Jackson. Both banks were based upon the
Bank of England.[16]
**a third national bank
**known as the Federal Reservewas
**established in 1913 and still exists to this day.
The time line of central banking in the United States is as
2. 17911811
First Bank of the United States
2. 18111816
No central bank

% 18161836
Second Bank of the United States
% 18371862
Free Bank Era
% 18461921
Independent Treasury System
% 18631913
National Banks
% 1913Present
Federal Reserve System
Creation of First and Second Central Bank
The first U.S. institution with central banking
responsibilities was the First Bank of the United States,
chartered by Congress and signed into law by President
George Washington on February 25, 1791 at the urging of
Alexander Hamilton.
This was done despite strong opposition from Thomas
Jeferson and James Madison, among numerous others.
The charter was for twenty years and expired in 1811
under President Madison, because Congress refused to
renew it.[20]
In 1816, however, Madison revived it in the form of the
Second Bank of the United States.
Years later, early renewal of the bank's charter became the
primary issue in the reelection of President Andrew
Jackson. After Jackson, who was opposed to the central
bank, was reelected, he pulled the government's funds out
of the bank.
**is this the name of the lady from the dandelion story,

Nicholas Biddle, President of the Second Bank of the
United States, responded by contracting the money supply
to pressure Jackson to renew the bank's charter forcing the
country into a recession, which the bank blamed on
Jackson's policies.
Interestingly, Jackson is the only President to completely
pay of the national debt.
The bank's charter was not renewed in 1836. From 1837 to
1862, in the Free Banking Era there was no formal central
From 1862 to 1913, a system of national banks was
instituted by the 1863 National Banking Act. A series of
bank panics, in 1873, 1893, and 1907, provided strong
demand for the creation of a centralized banking system.
**the central bankers created the runs on the banks and
the ensuing bank crashes, in order to create a need for
their central bank, for their money, without a vessel, could
not become an engine to generate wealth for them: they
needed indebtedness, and that meant making slaves of all
the people of the world **this is a simple logical
conclusion, and the creation was inevitable**this is how
the Free and Noble Savage Human was transformed into
the Slave Tool of the System Machine;;;mostly, life is
better, but when you fall through the cracks and out of the
system, you die from neglect and abuse**
Creation of Third Central Bank
Main article: History of the Federal Reserve System
**The main motivation for the third central banking system
came from the Panic of 1907, which caused renewed
demands for banking and currency reform.[21]

During the last quarter of the 19th century and the

beginning of the 20th century the United States economy
went through a series of financial panics.[22]
According to many economists, the previous national
banking system had two main weaknesses:
**an inelastic currency and
**a lack of liquidity.[22]
In 1908, Congress enacted the Aldrich-Vreeland Act, which
provided for an emergency currency and established the
National Monetary Commission to study banking and
currency reform.[23] The National Monetary Commission
returned with recommendations which later became the
basis of the Federal Reserve Act, passed in 1913.
Federal Reserve Act
Main article: Federal Reserve Act
Newspaper clipping, December 24, 1913
The head of the bipartisan National Monetary Commission
was financial expert and Senate Republican leader Nelson
Aldrich. Aldrich set up two commissionsone to study the
American monetary system in depth and the other,
headed by Aldrich himself, to study the European central
banking systems and report on them.[23]
Aldrich went to Europe opposed to centralized banking, but
after viewing Germany's monetary system he came away
believing that a centralized bank was better than the
government-issued bond system that he had previously
In early November 1910, Aldrich met with five well known
members of the New York banking community to devise a
central banking bill.

Paul Warburg, an attendee of the meeting and long time

advocate of central banking in the U.S., later wrote that
Aldrich was
"bewildered at all that he had absorbed abroad and he was
faced with the difficult task of writing a highly technical bill
while being harassed by the daily grind of his
parliamentary duties."[24]
After ten days of deliberation, the bill, which would later be
referred to as the "Aldrich Plan", was agreed upon.
It had several key components including:
a central bank with a Washington based headquarters and
fifteen branches located throughout the U.S. in
geographically strategic locations, and a uniform elastic
currency based on gold and commercial paper.
Aldrich believed a central banking system with no political
involvement was best, but was convinced by Warburg that
a plan with no public control was not politically feasible.
The compromise involved representation of the public
sector on the Board of Directors.[25]
Aldrich's bill was met with much opposition from
politicians. Critics were suspicious of a central bank, and
charged Aldrich of being biased due to his close ties to
wealthy bankers such as J. P. Morgan and John D.
Rockefeller, Jr., Aldrich's son-in-law.
Most Republicans favored the Aldrich Plan,[25] but it
lacked enough support in Congress to pass because rural
and western states viewed it as favoring the "eastern
In contrast, progressive Democrats favored a reserve
system owned and operated by the government; they

believed that public ownership of the central bank would

end Wall Street's control of the American currency supply.
[25] Conservative Democrats fought for a privately owned,
yet decentralized, reserve system, which would still be free
of Wall Street's control.[25]
The original Aldrich Plan was dealt a fatal blow in 1912,
when Democrats won the White House and Congress.[24]
Nonetheless, President Woodrow Wilson believed that the
Aldrich plan would suffice with a few modifications.
The plan became the basis for the Federal Reserve Act,
which was proposed by Senator Robert Owen in May 1913.
The primary diference between the two bills
**was the transfer of control of the Board of Directors
(called the Federal Open Market Committee in the Federal
Reserve Act)
**to the government.[1][20]
The bill passed Congress in late 1913[26][27] on a mostly
partisan basis, with most Democrats voting "yea" and
most Republicans voting "nay".[20]
Key laws
Key laws afecting the Federal Reserve have been:[28]
% Federal Reserve Act
% Federal Income Tax
% Glass-Steagall Act
% Banking Act of 1935
% Employment Act of 1946
% Federal Reserve-Treasury Department Accord of 1951
% Bank Holding Company Act of 1956 and the
amendments of 1970
% Federal Reserve Reform Act of 1977
% International Banking Act of 1978
% Full Employment and Balanced Growth Act (1978)

Depository Institutions Deregulation and Monetary

Control Act (1980)
% Financial Institutions Reform, Recovery and
Enforcement Act of 1989
% Federal Deposit Insurance Corporation Improvement
Act of 1991
% Gramm-Leach-Bliley Act (1999)
% Financial Services Regulatory Relief Act (2006)
% Emergency Economic Stabilization Act (2008)
% Dodd-Frank Wall Street Reform and Consumer
Protection Act (2010)
The primary motivation for creating the Federal Reserve
System was to address banking panics.[2] Other purposes
are stated in the Federal Reserve Act, such as
"to furnish an elastic currency, to aford means of
rediscounting commercial paper, to establish a more
efective supervision of banking in the United States, and
for other purposes".[29]
Before the founding of the Federal Reserve, the United
States underwent several financial crises. A particularly
severe crisis in 1907 led Congress to enact the Federal
Reserve Act in 1913. Today the Fed has broader
responsibilities than only ensuring the stability of the
financial system.[30]
Current functions of the Federal Reserve System include:

To address the problem of banking panics

To serve as the central bank for the United States
To strike a balance between private interests of banks
and the centralized responsibility of government
1 To supervise and regulate banking institutions

2 To protect the credit rights of consumers

% To manage the nation's money supply through
monetary policy to achieve the sometimes-conflicting
goals of
1 maximum employment
2 stable prices, including prevention of either inflation
or deflation[31]
3 moderate long-term interest rates
% To maintain the stability of the financial system and
contain systemic risk in financial markets
% To provide financial services to depository institutions,
the U.S. government, and foreign official institutions,
including playing a major role in operating the nation's
payments system
1 To facilitate the exchange of payments among
2 To respond to local liquidity needs
% To strengthen U.S. standing in the world economy
Addressing the problem of bank panics
Further information: bank run and fractional-reserve
Bank runs occur because banking institutions in the United
States are only required to hold a fraction of their
depositors' money in reserve.
This practice is called fractional-reserve banking.
As a result, most banks invest the majority of their
depositors' money. On rare occasion, too many of the
bank's customers will withdraw their savings and the bank
will need help from another institution to continue
Bank runs can lead to a multitude of social and economic
problems. The Federal Reserve was designed as an
attempt to prevent or minimize the occurrence of bank

runs, and possibly act as a lender of last resort if a bank

run does occur.
Many economists, following Milton Friedman, believe that
the Federal Reserve inappropriately refused to lend money
to small banks during the bank runs of 1929.[32]
Elastic currency
The monthly changes in the currency component of the
U.S. money supply show currency being added into (%
change greater than zero) and removed from circulation
(% change less than zero).
The most noticeable changes occur around the Christmas
holiday shopping season as new currency is created so
people can make withdrawals at banks, and then removed
from circulation afterwards, when less cash is demanded.
One way to prevent bank runs is to have a money supply
that can expand when money is needed. The term "elastic
currency" in the Federal Reserve Act does not just mean
the ability to expand the money supply, but also to
contract it.
Some economic theories have been developed that
support the idea of expanding or shrinking a money supply
as economic conditions warrant.
Elastic currency is defined by the Federal Reserve as:[33]
Currency that can, by the actions of the central monetary
authority, expand or contract in amount warranted by
economic conditions.
Monetary policy of the Federal Reserve System is based
partially on the theory that it is best overall to expand or
contract the money supply as economic conditions

Check Clearing System

Because some banks refused to clear checks from certain
others during times of economic uncertainty, a checkclearing system was created in the Federal Reserve
It is briefly described in The Federal Reserve System
Purposes and Functions as follows:[34]
By creating the Federal Reserve System, Congress
intended to eliminate the severe financial crises that had
periodically swept the nation, especially the sort of
financial panic that occurred in 1907.
During that episode, payments were disrupted throughout
the country because many banks and clearinghouses
refused to clear checks drawn on certain other banks, a
practice that contributed to the failure of otherwise solvent
To address these problems, Congress gave the Federal
Reserve System the authority to establish a nationwide
check-clearing system.
The System, then, was to provide not only an elastic
currencythat is, a currency that would expand or shrink
in amount as economic conditions warrantedbut also an
efficient and equitable check-collection system.
Lender of last resort
Further information: Lender of last resort
According to the Federal Reserve Bank of Minneapolis,
"the Federal Reserve has the authority and financial
resources to act as 'lender of last resort' by extending

credit to depository institutions or to other entities in

unusual circumstances involving a national or regional
emergency, where failure to obtain credit would have a
severe adverse impact on the economy."[35]
The Federal Reserve System's role as lender of last resort
has been criticized because it shifts the risk and
responsibility away from lenders and borrowers and places
it on others in the form of inflation.[36]
Through its discount and credit operations, Reserve Banks
provide liquidity to banks to meet short-term needs
stemming from seasonal fluctuations in deposits or
unexpected withdrawals. Longer term liquidity may also be
provided in exceptional circumstances. The rate the Fed
charges banks for these loans is the discount rate
(officially the primary credit rate).
By making these loans, the Fed serves as a bufer against
unexpected day-to-day fluctuations in reserve demand and
supply. This contributes to the efective functioning of the
banking system, alleviates pressure in the reserves market
and reduces the extent of unexpected movements in the
interest rates.[37]
For example, on September 16, 2008, the Federal Reserve
Board authorized an $85 billion loan to stave of the
bankruptcy of international insurance giant American
International Group (AIG).[38][39]
Central bank
Further information: Central bank
In its role as the central bank of the United States, the Fed
serves as a banker's bank and as the government's bank.
As the banker's bank, it helps to assure the safety and
efficiency of the payments system. As the government's

bank, or fiscal agent, the Fed processes a variety of

financial transactions involving trillions of dollars.
Just as an individual might keep an account at a bank, the
U.S. Treasury keeps a checking account with the Federal
Reserve, through which incoming federal tax deposits and
outgoing government payments are handled.
As part of this service relationship, the Fed sells and
redeems U.S. government securities such as savings bonds
and Treasury bills, notes and bonds. It also issues the
nation's coin and paper currency.
The U.S. Treasury, through its Bureau of the Mint and
Bureau of Engraving and Printing, actually produces the
nation's cash supply and, in efect, sells the paper
currency to the Federal Reserve Banks at manufacturing
cost, and the coins at face value. The Federal Reserve
Banks then distribute it to other financial institutions in
various ways.[40] During the Fiscal Year 2008, the Bureau
of Engraving and Printing delivered 7.7 billion notes at an
average cost of 6.4 cents per note.[41]
Federal funds
Main article: Federal funds
Federal funds are the reserve balances (also called federal
reserve accounts) that private banks keep at their local
Federal Reserve Bank.[42][43] These balances are the
namesake reserves of the Federal Reserve System.
The purpose of keeping funds at a Federal Reserve Bank is
to have a mechanism for private banks to lend funds to
one another.
This market for funds plays an important role in the
Federal Reserve System as it is what inspired the name of
the system and it is what is used as the basis for monetary

Monetary policy works by influencing how much money

the private banks charge each other for the lending of
these funds.
Federal reserve accounts contain federal reserve credit,
which can be converted into federal reserve notes. Private
banks maintain their bank reserves in federal reserve
Balance between private banks and responsibility of
The system was designed out of a compromise between
the competing philosophies of privatization and
government regulation.
In 2006 Donald L. Kohn, vice chairman of the Board of
Governors, summarized the history of this compromise:
Agrarian and progressive interests, led by William Jennings
Bryan, favored a central bank under public, rather than
banker, control.
But the vast majority of the nation's bankers, concerned
about government intervention in the banking business,
opposed a central bank structure directed by political
The legislation that Congress ultimately adopted in 1913
reflected a hard-fought battle to balance these two
competing views and created the hybrid public-private,
centralized-decentralized structure that we have today.
In the current system, private banks are for-profit
businesses but government regulation places restrictions
on what they can do.
The Federal Reserve System is a part of government that
regulates the private banks.

The balance between privatization and government

involvement is also seen in the structure of the system.
Private banks elect members of the board of directors at
their regional Federal Reserve Bank while the members of
the Board of Governors are selected by the President of
the United States and confirmed by the Senate.
The private banks give input to the government officials
about their economic situation and these government
officials use this input in Federal Reserve policy decisions.
In the end, private banking businesses are able to run a
profitable business while the U.S. government, through the
Federal Reserve System, oversees and regulates the
activities of the private banks.
Government regulation and supervision
Ben Bernanke (lower-right), Chairman of the Federal
Reserve Board of Governors, at a House Financial Services
Committee hearing on February 10, 2009. Members of the
Board frequently testify before congressional committees
such as this one. The Senate equivalent of the House
Financial Services Committee is the Senate Committee on
Banking, Housing, and Urban Afairs.
Federal Banking Agency Audit Act enacted in 1978 as
Public Law 95-320 and Section 31 USC 714 of U.S. Code
establish that the Federal Reserve may be audited by the
Government Accountability Office (GAO).[45]
The GAO has authority to audit check-processing, currency
storage and shipments, and some regulatory and bank
examination functions, however there are restrictions to
what the GAO may in fact audit.
Audits of the Reserve Board and Federal Reserve banks

may not include:

% transactions for or with a foreign central bank or
government, or nonprivate international financing
% deliberations, decisions, or actions on monetary policy
% transactions made under the direction of the Federal
Open Market Committee; or
% a part of a discussion or communication among or
between members of the Board of Governors and
officers and employees of the Federal Reserve System
related to items (1), (2), or (3).[46][47]
The financial crisis which began in 2007, corporate
bailouts, and concerns over the Fed's secrecy have
brought renewed concern regarding ability of the Fed to
efectively manage the national monetary system.[48]
A July 2009 Gallup Poll found only 30% Americans thought
the Fed was doing a good or excellent job, a rating even
lower than that for the Internal Revenue Service, which
drew praise from 40%.[49]
The Federal Reserve Transparency Act was introduced by
congressman Ron Paul in order to obtain a more detailed
audit of the Fed. The Fed has since hired Linda Robertson
who headed the Washington lobbying office of Enron Corp.
and was adviser to all three of the Clinton administration's
Treasury secretaries.[50][51][52][53]
The Board of Governors in the Federal Reserve System has
a number of supervisory and regulatory responsibilities in
the U.S. banking system, but not complete responsibility. A
general description of the types of regulation and
supervision involved in the U.S. banking system is given by
the Federal Reserve:[54]
'The Board also plays a major role in the supervision and

regulation of the U.S. banking system. It has supervisory

responsibilities for state-chartered banks that are
members of the Federal Reserve System, bank holding
companies (companies that control banks), the foreign
activities of member banks, the U.S. activities of foreign
banks, and Edge Act and agreement corporations (limitedpurpose institutions that engage in a foreign banking
The Board and, under delegated authority, the Federal
Reserve Banks, supervise approximately 900 state
member banks and 5,000 bank holding companies. Other
federal agencies also serve as the primary federal
supervisors of commercial banks; the Office of the
Comptroller of the Currency supervises national banks, and
the Federal Deposit Insurance Corporation supervises state
banks that are not members of the Federal Reserve
Some regulations issued by the Board apply to the entire
banking industry, whereas others apply only to member
banks, that is, state banks that have chosen to join the
Federal Reserve System and national banks, which by law
must be members of the System.
The Board also issues regulations to carry out major
federal laws governing consumer credit protection, such as
the Truth in Lending, Equal Credit Opportunity, and Home
Mortgage Disclosure Acts. Many of these consumer
protection regulations apply to various lenders outside the
banking industry as well as to banks.
Members of the Board of Governors are in continual
contact with other policy makers in government. They
frequently testify before congressional committees on the
economy, monetary policy, banking supervision and
regulation, consumer credit protection, financial markets,
and other matters.

The Board has regular contact with members of the

President's Council of Economic Advisers and other key
economic officials. The Chairman also meets from time to
time with the President of the United States and has
regular meetings with the Secretary of the Treasury. The
Chairman has formal responsibilities in the international
arena as well.
Preventing asset bubbles
The board of directors of each Federal Reserve Bank
District also has regulatory and supervisory
responsibilities. For example, a member bank (private
bank) is not permitted to give out too many loans to
people who cannot pay them back.
This is because too many defaults on loans will lead to a
bank run. If the board of directors has judged that a
member bank is performing or behaving poorly, it will
report this to the Board of Governors. This policy is
described in United States Code:[55]
'Each Federal reserve bank shall keep itself informed of the
general character and amount of the loans and
investments of its member banks with a view to
ascertaining whether undue use is being made of bank
credit for the speculative carrying of or trading in
securities, real estate, or commodities, or for any other
purpose inconsistent with the maintenance of sound credit
conditions; and, in determining whether to grant or refuse
advances, rediscounts, or other credit accommodations,
the Federal reserve bank shall give consideration to such
The chairman of the Federal reserve bank shall report to
the Board of Governors of the Federal Reserve System any
such undue use of bank credit by any member bank,
together with his recommendation.
Whenever, in the judgment of the Board of Governors of
the Federal Reserve System, any member bank is making

such undue use of bank credit, the Board may, in its

discretion, after reasonable notice and an opportunity for a
hearing, suspend such bank from the use of the credit
facilities of the Federal Reserve System and may terminate
such suspension or may renew it from time to time.'
The punishment for making false statements or reports
that overvalue an asset is also stated in the U.S. Code:[56]
'Whoever knowingly makes any false statement or report,
or willfully overvalues any land, property or security, for
the purpose of influencing in any way...shall be fined not
more than $1,000,000 or imprisoned not more than 30
years, or both.'
These aspects of the Federal Reserve System are the parts
intended to prevent or minimize speculative asset bubbles,
which ultimately lead to severe market corrections. The
recent bubbles and corrections in energies, grains, equity
and debt products and real estate cast doubt on the
efficacy of these controls.
National payments system
[57] The Federal Reserve plays an important role in the
U.S. payments system. The twelve Federal Reserve Banks
provide banking services to depository institutions and to
the federal government. For depository institutions, they
maintain accounts and provide various payment services,
including collecting checks, electronically transferring
funds, and distributing and receiving currency and coin.
For the federal government, the Reserve Banks act as
fiscal agents, paying Treasury checks; processing
electronic payments; and issuing, transferring, and
redeeming U.S. government securities.
In passing the Depository Institutions Deregulation and
Monetary Control Act of 1980, Congress reaffirmed its

intention that the Federal Reserve should promote an

efficient nationwide payments system. The act subjects all
depository institutions, not just member commercial
banks, to reserve requirements and grants them equal
access to Reserve Bank payment services.
It also encourages competition between the Reserve Banks
and private-sector providers of payment services by
requiring the Reserve Banks to charge fees for certain
payments services listed in the act and to recover the
costs of providing these services over the long run.
The Federal Reserve plays a vital role in both the nation's
retail and wholesale payments systems, providing a
variety of financial services to depository institutions.
Retail payments are generally for relatively small-dollar
amounts and often involve a depository institution's retail
clientsindividuals and smaller businesses. The Reserve
Banks' retail services include distributing currency and
coin, collecting checks, and electronically transferring
funds through the automated clearinghouse system.
By contrast, wholesale payments are generally for largedollar amounts and often involve a depository institution's
large corporate customers or counterparties, including
other financial institutions.
The Reserve Banks' wholesale services include
electronically transferring funds through the Fedwire Funds
Service and transferring securities issued by the U.S.
government, its agencies, and certain other entities
through the Fedwire Securities Service. Because of the
large amounts of funds that move through the Reserve
Banks every day, the System has policies and procedures
to limit the risk to the Reserve Banks from a depository
institution's failure to make or settle its payments.
The Federal Reserve Banks began a multi-year
restructuring of their check operations in 2003 as part of a

long-term strategy to respond to the declining use of

checks by consumers and businesses and the greater use
of electronics in check processing. The Reserve Banks will
have reduced the number of full-service check processing
locations from 45 in 2003 to 4 by early 2011.[58]
Main article: Structure of the Federal Reserve System
Organization of the Federal Reserve System
The Federal Reserve System has both private and public
components, and can make decisions without the
permission of Congress or the President of the U.S.[59]
The System does not require public funding, and derives
its authority and purpose from the Federal Reserve Act
passed by Congress in 1913.
The two main aspects of the Federal Reserve System are
**the Federal Open Market Committee and
**regional Federal Reserve Banks located throughout the
Board of Governors
The seven-member Board of Governors is a federal agency
and is the main governing body of the Federal Reserve
It is charged with overseeing the 12 District Reserve Banks
and setting national monetary policy.
It also supervises and regulates the U.S. banking system in
Governors are appointed by the President of the United
States and confirmed by the Senate for staggered 14-year
The Board is required to make an annual report of
operations to the Speaker of the U.S. House of

The Chairman and Vice Chairman of the Board of

Governors are appointed by the President from among the
sitting Governors. They both serve a four year term and
they can be renominated as many times as the President
chooses, until their terms on the Board of Governors
expire, butregardless of whether either is reconfirmed for
their chairmanship or vice chairmanshiphe or she is free
to complete their term on the Board of Governors.[61]
List of members of the Board of Governors
The current members of the Board of Governors are as
Entered office[63]
Term expires
Ben Bernanke
February 1, 2006
January 31, 2020
January 31, 2014 (as Chairman)
Janet Yellen
(Vice Chairman)
October 4, 2010
January 31, 2024
October 4, 2014 (as Vice Chairman)
Kevin Warsh
February 24, 2006
January 31, 2018
Elizabeth Duke
August 5, 2008
January 31, 2012
Daniel Tarullo
January 28, 2009
January 31, 2022
Sarah Bloom Raskin
October 4, 2010
January 31, 2016


Federal Open Market Committee

Main article: Federal Open Market Committee
The Federal Open Market Committee (FOMC) consists of 12
members, seven from the Board of Governors and five
representatives from the regional Federal Reserve Banks.
The FOMC oversees open market operations, the principal
tool of national monetary policy.
These operations afect the amount of Federal Reserve
balances available to depository institutions, thereby
influencing overall monetary and credit conditions. The
FOMC also directs operations undertaken by the Federal
Reserve in foreign exchange markets. The representative
from the Federal Reserve Bank of New York, is a
permanent member, while the rest of the banks rotate at
two- and three-year intervals.
All Regional Reserve Bank presidents contribute to the
committee's assessment of the economy and of policy
options, but only the five presidents vote on policy
The FOMC determines its own internal organization and, by
**elects the Chairman of the Board of Governors
**as its chairman and
**the president of the Federal Reserve Bank of New York
**as its vice chairman.
**It is informal policy, within the FOMC, for the Board of
Governors and the New York Federal Reserve Bank
president to vote with the Chairman of the FOMC.
**Additionally, anyone who is not an expert on monetary
policy traditionally votes with the chairman as well.

**In any vote, no more than two FOMC members can

Formal meetings typically are held eight times each year in
Washington, D.C. Nonvoting Reserve Bank presidents also
participate in Committee deliberations and discussion.
The FOMC generally meets eight times a year in telephone
consultations and other meetings are held when needed.
Federal Reserve Banks
Main article: Federal Reserve Bank
Federal Reserve Districts
There are 12 Federal Reserve Banks, and they are located
in the following cities:
, New York
, Philadelphia
, Cleveland
, Richmond
, Atlanta
, Chicago
, St Louis
, Minneapolis
, Kansas City
, Dallas, and
San Francisco.
Each reserve Bank is responsible for member banks
located in its district.
**The size of each district was set based upon the
population distribution of the United States when the
Federal Reserve Act was passed.
**steve says, 1913**

Each regional Bank has a president, who is the chief

executive officer of their Bank. Each regional Reserve
Bank's president is nominated by their Bank's board of
directors, but the nomination is contingent upon approval
by the Board of Governors. Presidents serve five year
terms and may be reappointed.[66]
Each regional Bank's board consists of nine members.
Members are broken down into three classes: A, B, and C.
There are three board members in each class.
Class A members are chosen by the regional Bank's
shareholders, and are intended to represent member
banks' interests. Member banks are divided into large,
medium, and small. Each size bank elects one of the three
class A board members.
Class B board members are also nominated by the region's
member banks, but class B board members are supposed
to represent the interests of the public.
Lastly, class C board members are nominated by the Board
of Governors, and are also intended to represent the
interests of the public.[67]
A member bank is a private institution and owns stock in
its regional Federal Reserve Bank. All nationally chartered
banks hold stock in one of the Federal Reserve Banks.
State chartered banks may choose to be members (and
hold stock in their regional Federal Reserve bank), upon
meeting certain standards.
About 38% of U.S. banks are members of part of the
The amount of stock a member bank must own is equal to
3% of its combined capital and surplus.[69]
Holding stock in a Federal Reserve bank is not, however,
like owning the stock of a publicly traded company,
because it cannot be sold or traded.[70]

From the profits of the Regional Banks, each member bank

receives a dividend equal to 6% of the stock it owns in the
regional Reserve Bank to which it is a member.[59] The
remainder of the regional Federal Reserve Banks' profits is
given to the United States Treasury Department.
In 2009, the Federal Reserve Banks distributed $1.4 billion
in dividends to member banks and returned $47 billion to
the U.S. Treasury.[71]
Legal status of regional Federal Reserve Banks
The Federal Reserve Banks have an intermediate legal
status, with some features of private corporations and
some features of public federal agencies. The United
States has an interest in the Federal Reserve Banks as taxexempt federally-created instrumentalities whose profits
belong to the federal government, but this interest is not
Each member bank (commercial banks in the Federal
Reserve district) owns a nonnegotiable share of stock in its
regional Federal Reserve Bank. However, holding Federal
Reserve Bank stock is unlike owning stock in a publicly
traded company. The charter of each Federal Reserve Bank
is established by law and cannot be altered by the
member banks. Federal Reserve Bank stock cannot be sold
or traded, and member banks do not control the Federal
Reserve Bank as a result of owning this stock. They do,
however, elect six of the nine members of the Federal
Reserve Banks' boards of directors.[37]
In Lewis v. United States,[73] the United States Court of
Appeals for the Ninth Circuit stated that:
"The Reserve Banks are not federal instrumentalities for
purposes of the FTCA [the Federal Tort Claims Act], but are
independent, privately owned and locally controlled

The opinion went on to say, however, that:

"The Reserve Banks have properly been held to be federal
instrumentalities for some purposes."
Another relevant decision is Scott v. Federal Reserve Bank
of Kansas City,[72] in which the distinction is made
between Federal Reserve Banks, which are federallycreated instrumentalities, and the Board of Governors,
which is a federal agency.
Monetary policy
Further information: Monetary policy of the United States
The term "monetary policy" refers to the actions
undertaken by a central bank, such as the Federal
Reserve, to influence the availability and cost of money
and credit to help promote national economic goals. What
happens to money and credit afects interest rates (the
cost of credit) and the performance of the U.S. economy.
The Federal Reserve Act of 1913 gave the Federal Reserve
authority to set monetary policy.[74][75]
Interbank lending is the basis of policy
The Federal Reserve sets monetary policy by influencing
the Federal funds rate, which is the rate of interbank
lending of excess reserves.
The rate that banks charge each other for these loans is
determined by the markets but the Federal Reserve
influences this rate through the three "tools" of monetary
policy described in the Tools section below.
The Federal Funds rate is a short-term interest rate the
FOMC focuses on directly. This rate ultimately afects the
longer-term interest rates throughout the economy. A
summary of the basis and implementation of monetary

policy is stated by the Federal Reserve:

The Federal Reserve implements U.S. monetary policy by
afecting conditions in the market for balances that
depository institutions hold at the Federal Reserve Banks...
By conducting open market operations, imposing reserve
requirements, permitting depository institutions to hold
contractual clearing balances, and extending credit
through its discount window facility, the Federal Reserve
exercises considerable control over the demand for and
supply of Federal Reserve balances and the federal funds
Through its control of the federal funds rate, the Federal
Reserve is able to foster financial and monetary conditions
consistent with its monetary policy objectives.
This influences the economy through its efect on the
quantity of reserves that banks use to make loans. Policy
actions that add reserves to the banking system
encourage lending at lower interest rates thus stimulating
growth in money, credit, and the economy.
Policy actions that absorb reserves work in the opposite
direction. The Fed's task is to supply enough reserves to
support an adequate amount of money and credit,
avoiding the excesses that result in inflation and the
shortages that stifle economic growth.[77]
There are three main tools of monetary policy that the
Federal Reserve uses to influence the amount of reserves
in private banks:[74]

open market operations

purchases and sales of U.S. Treasury and federal agency
securitiesthe Federal Reserve's principal tool for
implementing monetary policy. The Federal Reserve's
objective for open market operations has varied over the
years. During the 1980s, the focus gradually shifted
toward attaining a specified level of the federal funds rate
(the rate that banks charge each other for overnight loans
of federal funds, which are the reserves held by banks at
the Fed), a process that was largely complete by the end
of the decade.[78]
discount rate
the interest rate charged to commercial banks and other
depository institutions on loans they receive from their
regional Federal Reserve Bank's lending facilitythe
discount window.[79]
reserve requirements
the amount of funds that a depository institution must hold
in reserve against specified deposit liabilities.[80]
Federal funds rate and open market operations
Further information: open market operations, money
creation, and federal funds rate
The efective federal funds rate charted over more than
fifty years.
The Federal Reserve System implements monetary policy
largely by targeting the federal funds rate. This is the rate
that banks charge each other for overnight loans of federal
funds, which are the reserves held by banks at the Fed.
This rate is actually determined by the market and is not
explicitly mandated by the Fed.
The Fed therefore tries to align the efective federal funds
rate with the targeted rate by adding or subtracting from
the money supply through open market operations.
The Federal Reserve System usually adjusts the federal

funds rate by 0.25% or 0.50% at a time.

Open market operations allow the Federal Reserve to
increase or decrease the amount of money in the banking
system as necessary to balance the Federal Reserve's dual
Open market operations are done through the sale and
purchase of United States Treasury security, sometimes
called "Treasury bills" or more informally "T-bills".
The Federal Reserve buys Treasury bills from its primary
dealers. The purchase of these securities afects the
federal funds rate, because primary dealers have accounts
at depository institutions.[81]
The Federal Reserve education website describes open
market operations as follows:[75]
'Open market operations involve the buying and selling of
U.S. government securities (federal agency and mortgagebacked). The term 'open market' means that the Fed
doesn't decide on its own which securities dealers it will do
business with on a particular day. Rather, the choice
emerges from an 'open market' in which the various
securities dealers that the Fed does business withthe
primary dealerscompete on the basis of price. Open
market operations are flexible and thus, the most
frequently used tool of monetary policy.
Open market operations are the primary tool used to
regulate the supply of bank reserves. This tool consists of
Federal Reserve purchases and sales of financial
instruments, usually securities issued by the U.S. Treasury,
Federal agencies and government-sponsored enterprises.
Open market operations are carried out by the Domestic
Trading Desk of the Federal Reserve Bank of New York
under direction from the FOMC. The transactions are
undertaken with primary dealers.
The Fed's goal in trading the securities is to afect the
federal funds rate, the rate at which banks borrow reserves

from each other. When the Fed wants to increase reserves,

it buys securities and pays for them by making a deposit
to the account maintained at the Fed by the primary
dealer's bank. When the Fed wants to reduce reserves, it
sells securities and collects from those accounts. Most
days, the Fed does not want to increase or decrease
reserves permanently so it usually engages in transactions
reversed within a day or two. That means that a reserve
injection today could be withdrawn tomorrow morning,
only to be renewed at some level several hours later.
These short-term transactions are called repurchase
agreements (repos) the dealer sells the Fed a security
and agrees to buy it back at a later date.'
Repurchase agreements
Further information: repurchase agreement
To smooth temporary or cyclical changes in the money
supply, the desk engages in repurchase agreements
(repos) with its primary dealers. Repos are essentially
secured, short-term lending by the Fed. On the day of the
transaction, the Fed deposits money in a primary dealer's
reserve account, and receives the promised securities as
When the transaction matures, the process unwinds: the
Fed returns the collateral and charges the primary dealer's
reserve account for the principal and accrued interest. The
term of the repo (the time between settlement and
maturity) can vary from 1 day (called an overnight repo) to
65 days.[82]
Discount rate
Further information: discount window
The Federal Reserve System also directly sets the
"discount rate", which is the interest rate for "discount
window lending", overnight loans that member banks
borrow directly from the Fed. This rate is generally set at a

rate close to 100 basis points above the target federal

funds rate.
The idea is to encourage banks to seek alternative funding
before using the "discount rate" option.[83]
The equivalent operation by the European Central Bank is
referred to as the "marginal lending facility".[84]
Both the discount rate and the federal funds rate influence
the prime rate, which is usually about 3 percent higher
than the federal funds rate.
Reserve requirements
Another instrument of monetary policy adjustment
employed by the Federal Reserve System is the fractional
reserve requirement, also known as the required reserve
ratio.[85] The required reserve ratio sets the balance that
the Federal Reserve System requires a depository
institution to hold in the Federal Reserve Banks,[76] which
depository institutions trade in the federal funds market
discussed above.[86]
The required reserve ratio is set by the Board of Governors
of the Federal Reserve System.[87] The reserve
requirements have changed over time and some of the
history of these changes is published by the Federal
Reserve Requirements in the U.S. Federal Reserve
Type of liability
Percentage of liabilities
Efective date
Net transaction accounts
$0 to $10.3 million
More than $10.3 million to $44.4 million

More than $44.4 million
Nonpersonal time deposits
Eurocurrency liabilities
As a response to the financial crisis of 2008, the Federal
Reserve now makes interest payments on depository
institutions' required and excess reserve balances. The
payment of interest on excess reserves gives the central
bank greater opportunity to address credit market
conditions while maintaining the federal funds rate close to
the target rate set by the FOMC.[89]
New facilities
In order to address problems related to the subprime
mortgage crisis and United States housing bubble, several
new tools have been created.
The first new tool, called the Term Auction Facility, was
added on December 12, 2007. It was first announced as a
temporary tool[90] but there have been suggestions that
this new tool may remain in place for a prolonged period of
Creation of the second new tool, called the Term Securities
Lending Facility, was announced on March 11, 2008.[92]
The main diference between these two facilities is that the
Term Auction Facility is used to inject cash into the banking
system whereas the Term Securities Lending Facility is
used to inject treasury securities into the banking system.
Creation of the third tool, called the Primary Dealer Credit
Facility (PDCF), was announced on March 16, 2008.[94]
The PDCF was a fundamental change in Federal Reserve

policy because now the Fed is able to lend directly to

primary dealers, which was previously against Fed policy.
[95] The diferences between these 3 new facilities is
described by the Federal Reserve:[96]
'The Term Auction Facility program ofers term funding to
depository institutions via a bi-weekly auction, for fixed
amounts of credit.
The Term Securities Lending Facility will be an auction for a
fixed amount of lending of Treasury general collateral in
exchange for OMO-eligible and AAA/Aaa rated private-label
residential mortgage-backed securities. The Primary
Dealer Credit Facility now allows eligible primary dealers to
borrow at the existing Discount Rate for up to 120 days.'
Some of the measures taken by the Federal Reserve to
address this mortgage crisis haven't been used since The
Great Depression.[97] The Federal Reserve gives a brief
summary of what these new facilities are all about:[98]
'As the economy has slowed in the last nine months and
credit markets have become unstable, the Federal Reserve
has taken a number of steps to help address the situation.
These steps have included the use of traditional monetary
policy tools at the macroeconomic level as well as
measures at the level of specific markets to provide
additional liquidity.'
The Federal Reserve's response has continued to evolve
since pressure on credit markets began to surface last
summer, but all these measures derive from the Fed's
traditional open market operations and discount window
tools by extending the term of transactions, the type of
collateral, or eligible borrowers.
A fourth facility, the Term Deposit Facility, was announced
December 9, 2009, and approved April 30, 2010, with an
efective date of Jun 4, 2010.[99] The Term Deposit Facility
allows Reserve Banks to ofer term deposits to institutions

that are eligible to receive earnings on their balances at

Reserve Banks.
Term deposits are intended to facilitate the
implementation of monetary policy by providing a tool by
which the Federal Reserve can manage the aggregate
quantity of reserve balances held by depository
institutions. Funds placed in term deposits are removed
from the accounts of participating institutions for the life of
the term deposit and thus drain reserve balances from the
banking system.
Term auction facility
Further information: Term auction facility
The Term Auction Facility is a program in which the Federal
Reserve auctions term funds to depository institutions.[90]
The creation of this facility was announced by the Federal
Reserve on December 12, 2007 and was done in
conjunction with the Bank of Canada, the Bank of England,
the European Central Bank, and the Swiss National Bank to
address elevated pressures in short-term funding markets.
The reason it was created is because banks were not
lending funds to one another and banks in need of funds
were refusing to go to the discount window.
Banks were not lending money to each other because
there was a fear that the loans would not be paid back.
Banks refused to go to the discount window because it is
usually associated with the stigma of bank failure.[101]
[102][103][104] Under the Term Auction Facility, the
identity of the banks in need of funds is protected in order
to avoid the stigma of bank failure.[105]
Foreign exchange swap lines with the European Central
Bank and Swiss National Bank were opened so the banks
in Europe could have access to U.S. dollars.[105] Federal
Reserve Chairman Ben Bernanke briefly described this

facility to the U.S. House of Representatives on January 17,

'the Federal Reserve recently unveiled a term auction
facility, or TAF, through which prespecified amounts of
discount window credit can be auctioned to eligible
borrowers. The goal of the TAF is to reduce the incentive
for banks to hoard cash and increase their willingness to
provide credit to households and firms...TAF auctions will
continue as long as necessary to address elevated
pressures in short-term funding markets, and we will
continue to work closely and cooperatively with other
central banks to address market strains that could hamper
the achievement of our broader economic objectives.[106]
It is also described in the Term Auction Facility FAQ[90]
The TAF is a credit facility that allows a depository
institution to place a bid for an advance from its local
Federal Reserve Bank at an interest rate that is determined
as the result of an auction. By allowing the Federal Reserve
to inject term funds through a broader range of
counterparties and against a broader range of collateral
than open market operations, this facility could help
ensure that liquidity provisions can be disseminated
efficiently even when the unsecured interbank markets are
under stress.
In short, the TAF will auction term funds of approximately
one-month maturity. All depository institutions that are
judged to be in sound financial condition by their local
Reserve Bank and that are eligible to borrow at the
discount window are also eligible to participate in TAF
auctions. All TAF credit must be fully collateralized.
Depositories may pledge the broad range of collateral that
is accepted for other Federal Reserve lending programs to
secure TAF credit. The same collateral values and margins
applicable for other Federal Reserve lending programs will
also apply for the TAF.

Term securities lending facility

The Term Securities Lending Facility is a 28-day facility that
will ofer Treasury general collateral to the Federal Reserve
Bank of New York's primary dealers in exchange for other
program-eligible collateral. It is intended to promote
liquidity in the financing markets for Treasury and other
collateral and thus to foster the functioning of financial
markets more generally.[107]
Like the Term Auction Facility, the TSLF was done in
conjunction with the Bank of Canada, the Bank of England,
the European Central Bank, and the Swiss National Bank.
The resource allows dealers to switch debt that is less
liquid for U.S. government securities that are easily
tradable. It is anticipated by Federal Reserve officials that
the primary dealers, which include Goldman Sachs Group.
Inc., J.P. Morgan Chase, and Morgan Stanley, will lend the
Treasuries on to other firms in return for cash.
That will help the dealers finance their balance sheets.
citation needed] The currency swap lines with the
European Central Bank and Swiss National Bank were
Primary dealer credit facility
The Primary Dealer Credit Facility (PDCF) is an overnight
loan facility that will provide funding to primary dealers in
exchange for a specified range of eligible collateral and is
intended to foster the functioning of financial markets
more generally.[96] This new facility marks a fundamental
change in Federal Reserve policy because now primary
dealers can borrow directly from the Fed when this
previously was not permitted.
Interest on reserves

As of October 2008, the Federal Reserve banks will pay

interest on reserve balances (required & excess) held by
depository institutions. The rate is set at the lowest federal
funds rate during the reserve maintenance period of an
institution, less 75bp.[108] As of October 23, 2008, the Fed
has lowered the spread to a mere 35 bp.[109]
Term deposit facility
The Term Deposit Facility is a program through which the
Federal Reserve Banks will ofer interest-bearing term
deposits to eligible institutions. By removing "excess
deposits" from participating banks, the overall level of
reserves available for lending is reduced, which should
result in increased market interest rates, acting as a brake
on economic activity and inflation. The Federal Reserve
has stated that:
'Term deposits will be one of several tools that the Federal
Reserve could employ to drain reserves when
policymakers judge that it is appropriate to begin moving
to a less accommodative stance of monetary policy. The
development of the TDF is a matter of prudent planning
and has no implication for the near-term conduct of
monetary policy.[110]'
The Federal Reserve initially authorized up to five
"small-value oferings are designed to ensure the
efectiveness of TDF operations and to provide eligible
institutions with an opportunity to gain familiarity with
term deposit procedures."[111]
After three of the ofering auctions were successfully
completed, it was announced that small-value auctions
would continue on an on-going basis.[112]
The Term Deposit Facility is essentially a tool available to
reverse the eforts that have been employed to provide
liquidity to the financial markets and to reduce the amount

of capital available to the economy. As stated in

Bloomberg News:
Policy makers led by Chairman Ben S. Bernanke are
preparing for the day when they will have to start
siphoning of more than $1 trillion in excess reserves from
the banking system to contain inflation. The Fed is charting
an eventual return to normal monetary policy, even as a
weakening near-term outlook has raised the possibility it
may expand its balance sheet.[113]
Chairman Ben S. Bernanke, testifying before House
Committee on Financial Services, described the Term
Deposit Facility and other facilities to Congress in the
following terms:
Most importantly, in October 2008 the Congress gave the
Federal Reserve statutory authority to pay interest on
balances that banks hold at the Federal Reserve Banks.
By increasing the interest rate on banks' reserves, the
Federal Reserve will be able to put significant upward
pressure on all short-term interest rates, as banks will not
supply short-term funds to the money markets at rates
significantly below what they can earn by holding reserves
at the Federal Reserve Banks. Actual and prospective
increases in short-term interest rates will be reflected in
turn in higher longer-term interest rates and in tighter
financial conditions more generally. ...
As an additional means of draining reserves, the Federal
Reserve is also developing plans to ofer to depository
institutions term deposits, which are roughly analogous to
certificates of deposit that the institutions ofer to their
A proposal describing a term deposit facility was recently
published in the Federal Register, and the Federal Reserve
is finalizing a revised proposal in light of the public
comments that have been received.

After a revised proposal is reviewed by the Board, we

expect to be able to conduct test transactions this spring
and to have the facility available if necessary thereafter.
The use of reverse repos and the deposit facility would
together allow the Federal Reserve to drain hundreds of
billions of dollars of reserves from the banking system
quite quickly, should it choose to do so.
When these tools are used to drain reserves from the
banking system, they do so by replacing bank reserves
with other liabilities; the asset side and the overall size of
the Federal Reserve's balance sheet remain unchanged.
If necessary, as a means of applying monetary restraint,
the Federal Reserve also has the option of redeeming or
selling securities. The redemption or sale of securities
would have the efect of reducing the size of the Federal
Reserve's balance sheet as well as further reducing the
quantity of reserves in the banking system.
Restoring the size and composition of the balance sheet to
a more normal configuration is a longer-term objective of
our policies. In any case, the sequencing of steps and the
combination of tools that the Federal Reserve uses as it
exits from its currently very accommodative policy stance
will depend on economic and financial developments and
on our best judgments about how to meet the Federal
Reserve's dual mandate of maximum employment and
price stability.
In sum, in response to severe threats to our economy, the
Federal Reserve created a series of special lending
facilities to stabilize the financial system and encourage
the resumption of private credit flows to American families
and businesses. As market conditions and the economic
outlook have improved, these programs have been
terminated or are being phased out.
The Federal Reserve also promoted economic recovery
through sharp reductions in its target for the federal funds

rate and through large-scale purchases of securities. The

economy continues to require the support of
accommodative monetary policies. However, we have
been working to ensure that we have the tools to reverse,
at the appropriate time, the currently very high degree of
monetary stimulus. We have full confidence that, when the
time comes, we will be ready to do so.[114]
Asset Backed Commercial Paper Money Market Mutual
Liquidity Facility
The Asset Backed Commercial Paper Money Market Mutual
Fund Liquidity Facility (ABCPMMMFLF) was also called the
AMLF. The Facility began operations on September 22,
2008, and was closed on February 1, 2010.[115]
All U.S. depository institutions, bank holding companies
(parent companies or U.S. broker-dealer affiliates), or U.S.
branches and agencies of foreign banks were eligible to
borrow under this facility pursuant to the discretion of the
Collateral eligible for pledge under the Facility was
required to meet the following criteria:
was purchased by Borrower on or after September 19,
2008 from a registered investment company that held
itself out as a money market mutual fund;
was purchased by Borrower at the Fund's acquisition cost
as adjusted for amortization of premium or accretion of
discount on the ABCP through the date of its purchase by
was rated at the time pledged to FRBB, not lower than A1,
F1, or P1 by at least two major rating agencies or, if rated
by only one major rating agency, the ABCP must have
been rated within the top rating category by that agency;
was issued by an entity organized under the laws of the

United States or a political subdivision thereof under a

program that was in existence on September 18, 2008;
and had a stated maturity that did not exceed 120 days if
the Borrower was a bank or 270 days for non-bank
Commercial Paper Funding Facility
The Commercial Paper Funding Facility is also called the
CPFF. On October 7, 2008 the Federal Reserve further
expanded the collateral it will loan against, to include
commercial paper. The action made the Fed a crucial
source of credit for non-financial businesses in addition to
commercial banks and investment firms. Fed officials said
they'll buy as much of the debt as necessary to get the
market functioning again.
They refused to say how much that might be, but they
noted that around $1.3 trillion worth of commercial paper
would qualify. There was $1.61 trillion in outstanding
commercial paper, seasonally adjusted, on the market as
of October 1, 2008, according to the most recent data from
the Fed. That was down from $1.70 trillion in the previous
week. Since the summer of 2007, the market has shrunk
from more than $2.2 trillion.[116]
Quantitative policy
A little-used tool of the Federal Reserve is the quantitative
policy. With that the Federal Reserve actually buys back
corporate bonds and mortgage backed securities held by
banks or other financial institutions. This in efect puts
money back into the financial institutions and allows them
to make loans and conduct normal business. The Federal
Reserve Board used this policy in the early 1990s when the
U.S. economy experienced the savings and loan crisis.
citation needed]
The bursting of the United States housing bubble

prompted the Fed to buy mortgage-backed securities for

the first time in November 2008. Over six weeks, a total of
$1.25 trillion were purchased in order stabilize the housing
market, about one-fifth of all U.S. government-backed
Quantitative easing
Quantitative easing is another way to influence monetary
policy, only recently begun to be used in the United States.
Other countries, such as Japan, have provided a template
for some Fed actions.
Essentially, quantitative easing provides a method for the
central bank to provide funds at lower than zero interest
rates, in order to increase the monetary supply and
combat deflationary forces.
**This is accomplished by the Fed purchasing U.S.
government debt with newly printed U.S. currency.
In essence, the Fed is monetizing the debt. In the current
(late 2007 to today) macro-economic environment, the
slowing velocity of money has induced U.S. central
bankers to pursue a variety of new, and to some radical,
policies to produce economic stimulus.
A few of the uncertainties involved in monetary policy
decision making are described by the federal reserve:[118]
While these policy choices seem reasonably
straightforward, monetary policy makers routinely face
certain notable uncertainties.
**First, the actual position of the economy and growth in
aggregate demand at any time are only partially known,
**as key information on spending, production, and prices

becomes available only with a lag.

Therefore, policy makers must rely on estimates of these
economic variables when assessing the appropriate course
of policy, aware that they could act on the basis of
misleading information.
Second, exactly how a given adjustment in the federal
funds rate will afect growth in aggregate demandin
terms of both the overall magnitude and the timing of its
impactis never certain. Economic models can provide
rules of thumb for how the economy will respond, but
these rules of thumb are subject to statistical error.
Third, the growth in aggregate supply, often called the
growth in potential output, cannot be measured with
In practice, as previously noted, monetary policy makers
do not have up-to-the-minute information on the state of
the economy and prices.
Useful information is limited not only by lags in the
construction and availability of key data but also by later
revisions, which can alter the picture considerably.
Therefore, although monetary policy makers will
eventually be able to ofset the efects that adverse
demand shocks have on the economy, it will be some time
before the shock is fully recognized andgiven the lag
between a policy action and the efect of the action on
aggregate demandan even longer time before it is
countered. Add to this the uncertainty about how the
economy will respond to an easing or tightening of policy
of a given magnitude, and it is not hard to see how the
economy and prices can depart from a desired path for a
period of time.
**The statutory goals of
**maximum employment and
**stable prices
are easier to achieve if the public understands those goals

and believes that the Federal Reserve will take efective

measures to achieve them.
% **Although the goals of monetary policy are clearly
spelled out in law,
% **the means to achieve those goals are not.
% Changes in the FOMC's target federal funds rate take
some time to afect the economy and prices, and it is
often far from obvious whether a selected level of the
federal funds rate will achieve those goals.
Measurement of economic variables
The Federal Reserve records and publishes large amounts
of data. A few websites where data is published are at the
Board of Governors Economic Data and Research page,
[119] the Board of Governors statistical releases and
historical data page,[120] and at the St. Louis Fed's FRED
(Federal Reserve Economic Data) page.[121] The Federal
Open Market Committee (FOMC) examines many economic
indicators prior to determining monetary policy.[122]
Net worth of households and nonprofit organizations
The net worth of households and nonprofit organizations in
the United States is published by the Federal Reserve in a
report titled, Flow of Funds.[123]
**At the end of fiscal year 2008, this value was $51.5
Money supply
Further information: Money supply
Components the US money supply (currency, M1 and M2)
from 1960 - 2010
The most common measures are named M0 (narrowest),

M1, M2, and M3. In the United States they are defined by
the Federal Reserve as follows:
The total of all physical currency, plus accounts at the
central bank that can be exchanged for physical currency.
M0 + those portions of M0 held as reserves or vault cash +
the amount in demand accounts ("checking" or "current"
M1 + most savings accounts, money market accounts, and
small denomination time deposits (certificates of deposit
of under $100,000).
M2 + all other CDs, deposits of eurodollars and repurchase
The Federal Reserve ceased publishing M3 statistics in
March 2006, explaining that it cost a lot to collect the data
but did not provide significantly useful information.[124]
The other three money supply measures continue to be
provided in detail.
Consumer price index
Further information: Consumer price index
US consumer price index 18002007.
File:U.S. Historical Inflation.svg
Year on year change in the U.S. dollar consumer price
index 19142006. The ability to maintain a low inflation
rate is a long-term measure of the Fed's success.
The consumer price index is used as one measure of the
value of money. It is defined as:

'A measure of the average price level of a fixed basket of

goods and services purchased by consumers as
determined by the Bureau of Labor Statistics. Monthly
changes in the CPI represent the rate of inflation. Core CPI
excludes volatile components, i.e., food and energy prices.'
The data consists of the U.S. city average of consumer
prices and can be found at The U.S. Department of Labor
Bureau of Labor Statistics[125]
The CPI taken alone is not a complete measure of the
value of money.
**For example, the monetary value of stocks, real estate,
and other goods and services categorized as investment
vehicles are not reflected in the CPI.
It is difficult to obtain a full picture of value across the full
range of the cost of living, so the CPI is typically used as a
substitute. The CPI therefore has powerful political
ramifications, and Administrations of both parties have
been tempted to change the basis for its calculation,
progressively underestimating the true rate of decline in
purchasing power.[126]
A controversial method used in calculating CPI is "hedonic
adjustments". The basic concept applies a discount for the
assumed increased utility of products (i.e. faster CPU
processing speeds of computers).
However, consumers rarely make decisions based upon
the price per computer processing cycle. An argument can
be made that such hedonic adjustments significantly
contribute to understating true inflation experienced by
consumers buying everyday goods and services.[127]
One of the Fed's main roles is to maintain price stability.
This means that the change in the consumer price index
over time should be as small as possible. The ability to
maintain a low inflation rate is a long-term measure of the

Fed's success.[128] Although the Fed usually tries to keep

the year-on-year change in CPI between 2 and 3 percent,
[129] there has been debate among policy makers as to
whether or not the Federal Reserve should have a specific
inflation targeting policy.[130][131][132]
Inflation and the economy
There are two types of inflation that are closely tied to
each other.
**Monetary inflation is an increase in the money supply.
**Price inflation is a sustained increase in the general level
of prices, which is equivalent to a decline in the value or
purchasing power of money.
If the supply of money and credit increases too rapidly
over many months (monetary inflation), the result will
usually be price inflation.
Price inflation does not always increase in direct proportion
to monetary inflation; it is also afected by the
**velocity of money
and other factors. With price inflation, a dollar buys less
and less over time.[75]
The efects of monetary and price inflation include:[75]
Price inflation makes workers worse of if their incomes
don't rise as rapidly as prices.
Pensioners living on a fixed income are worse of if their
savings do not increase more rapidly than prices.
Lenders lose because they will be repaid with dollars that
aren't worth as much.
Savers lose because the dollar they save today will not buy
as much when they are ready to spend it.
Businesses and people will find it harder to plan and
therefore may decrease investment in future projects.

Owners of financial assets sufer.

Interest rate-sensitive industries, like mortgage
companies, sufer as monetary inflation drives up longterm interest rates and Federal Reserve tightening raises
short-term rates.
Unemployment rate
United States unemployment rates 19752010 showing
variance between the fifty states
Further information:
stics and List of U.S. states by unemployment rate
The unemployment rate statistics are collected by the
Bureau of Labor Statistics. Since one of the stated goals of
monetary policy is maximum employment, the
unemployment rate is a sign of the success of the Federal
Reserve System.[unbalanced opinion]
Like the CPI, the unemployment rate is used as a
barometer of the nation's economic health, and thus as a
measure of the success of an administration's economic
policies. Since 1980, both parties have made progressive
changes in the basis for calculating unemployment, so that
the numbers now quoted cannot be compared directly to
the corresponding rates from earlier administrations, or to
the rest of the world.[133]
Further information: seignorage
The Federal Reserve is self-funded. The vast majority (90%
+) of Fed revenues come from open market operations,
specifically the interest on the portfolio of Treasury
securities as well as "capital gains/losses" that may arise
from the buying/selling of the securities and their
derivatives as part of Open Market Operations.

The balance of revenues come from sales of financial

services (check and electronic payment processing) and
discount window loans.[134]
The Board of Governors (Federal Reserve Board) creates a
budget report once per year for Congress. There are two
reports with budget information. The one that lists the
complete balance statements with income and expenses
as well as the net profit or loss is the large report simply
titled, "Annual Report". It also includes data about
employment throughout the system. The other report,
which explains in more detail the expenses of the diferent
aspects of the whole system, is called "Annual Report:
Budget Review". These are comprehensive reports with
many details and can be found at the Board of Governors'
website under the section "Reports to Congress"[135]
Net worth
Balance sheet
One of the keys to understanding the Federal Reserve is
the Federal Reserve balance sheet (or balance statement).
In accordance with Section 11 of the Federal Reserve Act,
the Board of Governors of the Federal Reserve System
**publishes once each week the "Consolidated Statement
of Condition of All Federal Reserve Banks"
showing the condition of each Federal Reserve bank and a
consolidated statement for all Federal Reserve banks. The
Board of Governors requires that excess earnings of the
Reserve Banks be transferred to the Treasury as interest
on Federal Reserve notes.[136][137]
Below is the balance sheet as of November 7, 2010 (in
billions of dollars):
Gold Stock
Special Drawing Rights Certificate Acct.

Treasury Currency Outstanding (Coin)
Securities Held Outright
U.S. Treasury Securities
Notes and Bonds, nominal
Notes and Bonds, inflation-indexed
Inflation Compensation
Federal Agency Debt Securities
Mortgage-Backed Securities
Repurchase Agreements
Term Auction Credit
Other Loans
Credit Extended to AIG Inc.
Term Asset-Backed Securities Loan Facility
Other Credit Extended
Commercial Paper Funding Facility
Net portfolio holdings of Maiden Lane LLC, Maiden Lane II
LLC, and Maiden Lane III LLC
Preferred Interest in AIG Life-Insurance Subsidiaries
Net Holdings of TALF LLC

Central Bank Liquidity Swaps
Other Assets
Total Assets
Currency in Circulation
Reverse repurchase agreements
Term Deposits
U.S. Treasury, general account
U.S. Treasury, supplementary financing account
Foreign official
Service Related
Other Deposits
Funds from AIG, held as agent
Other Liabilities
Total liabilities
CAPITAL (AKA Net Equity)
Capital Paid In

Other Capital
Total Capital
MEMO (of-balance-sheet items)
Marketable securities held in custody for foreign official
and international accounts
U.S. Treasury Securities
Federal Agency Securities
Securities lent to dealers
Total combined assets for all 12 Federal Reserve Banks.
Total combined liabilities for all 12 Federal Reserve Banks.
Analyzing the Federal Reserve's balance sheet reveals a
number of facts:
2. **The Fed has over $11 billion in gold, which is a
holdover from the days the government used to back
U.S. Notes and Federal Reserve Notes with gold.
citation needed].
3. The value reported here is based on a statutory
valuation of $42 2/9 per fine troy ounce. As of March
2009, the market value of that gold is around $247.8






The Fed holds more than $1.8 billion in coinage, not as

a liability but as an asset. The Treasury Department is
actually in charge of creating coins and U.S. Notes.
The Fed then buys coinage from the Treasury by
increasing the liability assigned to the Treasury's
The Fed holds at least $534 billion of the national debt.
The "securities held outright" value used to directly
represent the Fed's share of the national debt, but
after the creation of new facilities in the winter of
20072008, this number has been reduced and the
diference is shown with values from some of the new
The Fed has no assets from overnight repurchase
Repurchase agreements are the primary asset of
choice for the Fed in dealing in the open market. Repo
assets are bought by creating 'depository institution'
liabilities and directed to the bank the primary dealer
uses when they sell into the open market.
The more than $1 trillion in Federal Reserve Note
liabilities represents nearly the total value of all dollar
bills in existence; over $176 billion is held by the Fed
(not in circulation); and the "net" figure of $863 billion
represents the total face value of Federal Reserve
Notes in circulation.
The $916 billion in deposit liabilities of depository
institutions shows that dollar bills are not the only
source of government money. Banks can swap deposit
liabilities of the Fed for Federal Reserve Notes back
and forth as needed to match demand from
customers, and the Fed can have the Bureau of
Engraving and Printing create the paper bills as
needed to match demand from banks for paper money.





**The amount of money printed has no relation to the

growth of the monetary base (M0).
The $93.5 billion in Treasury liabilities shows that the
Treasury Department does not use private banks but
rather uses the Fed directly (the lone exception to this
rule is Treasury Tax and Loan because government
worries that pulling too much money out of the private
banking system during tax time could be disruptive).
citation needed]
The $1.6 billion foreign liability represents the amount
of foreign central bank deposits with the Federal
The $9.7 billion in 'other liabilities and accrued
dividends' represents partly the amount of money
owed so far in the year to member banks for the 6%
dividend on the 3% of their net capital they are
required to contribute in exchange for nonvoting stock
their regional Reserve Bank in order to become a
Member banks are also subscribed for an additional
3% of their net capital, which can be called at the
Federal Reserve's discretion. All nationally chartered
banks must be members of a Federal Reserve Bank,
and state-chartered banks have the choice to become
members or not.
Total capital represents the profit the Fed has earned,
which comes mostly from assets they purchase with
the deposit and note liabilities they create. Excess
capital is then turned over to the Treasury Department
and Congress to be included into the Federal Budget
as "Miscellaneous Revenue".

In addition, the balance sheet also indicates which assets

are held as collateral against Federal Reserve Notes.

Federal Reserve Notes and Collateral
Federal Reserve Notes Outstanding
Less: Notes held by F.R. Banks
Federal Reserve notes to be collateralized
Collateral held against Federal Reserve notes
Gold certificate account
Special drawing rights certificate account
U.S. Treasury, agency debt, and mortgage-backed
securities pledged
Other assets pledged
Main article: Criticism of the Federal Reserve
The Federal Reserve System has faced intensified criticism
following the Troubled Asset Relief Program of 2008-9.
Longtime critics of the Fed gained new audiences as New
York Times columnist Frank Rich noted,
"Ron Paul and Jim DeMint, political heroes of the tea party
right, and Bernie Sanders and Alan Grayson, similarly
revered on the left, have found a common cause in
vilifying the Federal Reserve Bank and its chairman, Ben
Influence on economics researchers
Some criticism involves economic data compiled by the
Fed. The Fed sponsors much of the monetary economics

research in the U.S., and Lawrence H. White objects that

this makes it less likely for researchers to publish findings
challenging the status quo.[139]
The Federal Reserve System and the individual banks
undergo regular audits by the GAO and an outside auditor.
GAO audits are limited and do not cover
"most of the Feds monetary policy actions or decisions,
including discount window lending (direct loans to financial
institutions), open-market operations and any other
transactions made under the direction of the Federal Open
Market Committee" ...[nor may the GAO audit] "dealings
with foreign governments and other central banks."
[140] Various statutory changes, including the Federal
Reserve Transparency Act, have been proposed to broaden
the scope of the audits. Bloomberg L.P. News brought a
lawsuit against the Board of Governors of the Federal
Reserve System to force the Board to reveal the identities
of firms for which it has provided guarantees.[141]
Bloomberg, L.P. won at the trial court level,[142] and as of
early September 2010 the case is on appeal at the United
States Court of Appeals for the Second Circuit.[143]
Role in business cycles and inflation
Adherents of the Austrian School of economic theory
blame the economic crisis in the late 2000s[144] on the
Federal Reserve's policy, particularly under the leadership
of Alan Greenspan, of credit expansion through historically
low interest rates starting in 2001, which they claim
enabled the United States housing bubble.
See also
% Cash-out


Central bank
Core inflation
Consumer Leverage Ratio
Criticism of the Federal Reserve
Discount window
Divorce bill
Economic reports
Executive Order 11110
Federal funds
Federal Reserve 800 billion dollar Consumer Loan and
bond plan
% Federal Reserve Act
% Federal Reserve Police
% Federal Reserve Statistical Release
% Fort Knox Bullion Depository
% Free banking
Gold standard
% Government debt
% Greenspan put
% History of central banking in the United States
% History of Federal Open Market Committee actions
% HR 1207
% Inflation
% Legal Tender Cases
% Monetary policy of the United States
% Money market
% Money supply
% Nonfinancial debt
% Primary dealers
% Primary Dealers Credit Facility
% Repurchase agreement
% Term auction facility
United States dollar
Federal Reserve System

**art poster framed behind glass of yggdrasil tree and

The Norns spin the threads of fate at the foot of Yggdrasil,
the tree of the world. Beneath them is the well
Urarbrunnr with the two swans that have engendered all
the swans in the world.
Declaration of Independence
Here is the complete text of the Declaration of
Independence.The original spelling and capitalization have
been retained. (Adopted by Congress on July 4, 1776)
The Unanimous Declarationof the Thirteen United States of
When, in the course of human events, it becomes
necessary for one people to dissolve the political bands
which have connected them with another, and to assume
among the powers of the earth, the separate and equal
station to which the laws of nature and of nature's God
entitle them, a decent respect to the opinions of mankind
requires that they should declare the causes which impel
them to the separation.
We hold these truths to be self-evident, that all men are
created equal, that they are endowed by their Creator with
certain unalienable rights, that among these are life,
liberty and the pursuit of happiness. That to secure these
rights, governments are instituted among men, deriving
their just powers from the consent of the governed. That
whenever any form of government becomes destructive to
these ends, it is the right of the people to alter or to
abolish it, and to institute new government, laying its
foundation on such principles and organizing its powers in
such form, as to them shall seem most likely to efect their
safety and happiness. Prudence, indeed, will dictate that
governments long established should not be changed for
light and transient causes; and accordingly all experience

hath shown that mankind are more disposed to sufer,

while evils are suferable, than to right themselves by
abolishing the forms to which they are accustomed. But
when a long train of abuses and usurpations, pursuing
invariably the same object evinces a design to reduce
them under absolute despotism, it is their right, it is their
duty, to throw of such government, and to provide new
guards for their future security.
--Such has been the patient suferance of these colonies;
and such is now the necessity which constrains them to
alter their former systems of government. The history of
the present King of Great Britain is a history of repeated
injuries and usurpations, all having in direct object the
establishment of an absolute tyranny over these states. To
prove this, let facts be submitted to a candid world.
He has refused his assent to laws, the most wholesome
and necessary for the public good.
He has forbidden his governors to pass laws of immediate
and pressing importance, unless suspended in their
operation till his assent should be obtained; and when so
suspended, he has utterly neglected to attend to them.
He has refused to pass other laws for the accommodation
of large districts of people, unless those people would
relinquish the right of representation in the legislature, a
right inestimable to them and formidable to tyrants only.
He has called together legislative bodies at places unusual,
uncomfortable, and distant from the depository of their
public records, for the sole purpose of fatiguing them into
compliance with his measures.
He has dissolved representative houses repeatedly, for
opposing with manly firmness his invasions on the rights of
the people.
He has refused for a long time, after such dissolutions, to
cause others to be elected; whereby the legislative

powers, incapable of annihilation, have returned to the

people at large for their exercise; the state remaining in
the meantime exposed to all the dangers of invasion from
without, and convulsions within.
He has endeavored to prevent the population of these
states; for that purpose obstructing the laws for
naturalization of foreigners; refusing to pass others to
encourage their migration hither, and raising the
conditions of new appropriations of lands.
He has obstructed the administration of justice, by refusing
his assent to laws for establishing judiciary powers.
He has made judges dependent on his will alone, for the
tenure of their offices, and the amount and payment of
their salaries.
He has erected a multitude of new offices, and sent hither
swarms of officers to harass our people, and eat out their
He has kept among us, in times of peace, standing armies
without the consent of our legislature.
He has afected to render the military independent of and
superior to civil power.
He has combined with others to subject us to a jurisdiction
foreign to our constitution, and unacknowledged by our
laws; giving his assent to their acts of pretended
For quartering large bodies of armed troops among us:
**For protecting them, by mock trial, from punishment for
any murders which they should commit on the inhabitants
of these states:
For cutting of our trade with all parts of the world:

**For imposing taxes on us without our consent:

**For depriving us in many cases, of the benefits of trial by
For transporting us beyond seas to be tried for pretended
For abolishing the free system of English laws in a
neighboring province, establishing therein an arbitrary
government, and enlarging its boundaries so as to render
it at once an example and fit instrument for introducing
the same absolute rule in these colonies:
For taking away our charters, abolishing our most valuable
laws, and altering fundamentally the forms of our
For suspending our own legislatures, and declaring
themselves invested with power to legislate for us in all
cases whatsoever.
He has abdicated government here, by declaring us out of
his protection and waging war against us.
He has plundered our seas, ravaged our coasts, burned our
towns, and destroyed the lives of our people.
He is at this time transporting large armies of foreign
mercenaries to complete the works of death, desolation
and tyranny, already begun with circumstances of cruelty
and perfidy scarcely paralleled in the most barbarous
ages, and totally unworthy the head of a civilized nation.
He has constrained our fellow citizens taken captive on the
high seas to bear arms against their country, to become
the executioners of their friends and brethren, or to fall
themselves by their hands.
He has excited domestic insurrections amongst us, and
has endeavored to bring on the inhabitants of our
frontiers, the merciless Indian savages, whose known rule
of warfare, is undistinguished destruction of all ages, sexes
and conditions.
In every stage of these oppressions we have petitioned for
redress in the most humble terms: our repeated petitions

have been answered only by repeated injury. A prince,

whose character is thus marked by every act which may
define a tyrant, is unfit to be the ruler of a free people.
Nor have we been wanting in attention to our British
brethren. We have warned them from time to time of
attempts by their legislature to extend an unwarrantable
jurisdiction over us. We have reminded them of the
circumstances of our emigration and settlement here. We
have appealed to their native justice and magnanimity,
and we have conjured them by the ties of our common
kindred to disavow these usurpations, which, would
inevitably interrupt our connections and correspondence.
They too have been deaf to the voice of justice and of
consanguinity. We must, therefore, acquiesce in the
necessity, which denounces our separation, and hold
them, as we hold the rest of mankind, enemies in war, in
peace friends.
We, therefore, the representatives of the United States of
America, in General Congress, assembled, appealing to the
Supreme Judge of the world for the rectitude of our
intentions, do, in the name, and by the authority of the
good people of these colonies, solemnly publish and
declare, that these united colonies are, and of right ought
to be free and independent states; that they are absolved
from all allegiance to the British Crown, and that all
political connection between them and the state of Great
Britain, is and ought to be totally dissolved; and that as
free and independent states, they have full power to levy
war, conclude peace, contract alliances, establish
commerce, and to do all other acts and things which
independent states may of right do. And for the support of
this declaration, with a firm reliance on the protection of
Divine Providence, we mutually pledge to each other our
lives, our fortunes and our sacred honor.
New Hampshire: Josiah Bartlett, William Whipple, Matthew
Massachusetts: John Hancock, Samual Adams, John Adams,
Robert Treat Paine, Elbridge Gerry
Rhode Island: Stephen Hopkins, William Ellery

Connecticut: Roger Sherman, Samuel Huntington, William

Williams, Oliver Wolcott
New York: William Floyd, Philip Livingston, Francis Lewis,
Lewis Morris
New Jersey: Richard Stockton, John Witherspoon, Francis
Hopkinson, John Hart, Abraham Clark
Pennsylvania: Robert Morris, Benjamin Rush, Benjamin
Franklin, John Morton, George Clymer, James Smith,
George Taylor, James Wilson, George Ross
Delaware: Caesar Rodney, George Read, Thomas McKean
Maryland: Samuel Chase, William Paca, Thomas Stone,
Charles Carroll of Carrollton
Virginia: George Wythe, Richard Henry Lee, Thomas
Jeferson, Benjamin Harrison, Thomas Nelson, Jr., Francis
Lightfoot Lee, Carter Braxton
North Carolina: William Hooper, Joseph Hewes, John Penn
South Carolina: Edward Rutledge, Thomas Heyward, Jr.,
Thomas Lynch, Jr., Arthur Middleton
Georgia: Button Gwinnett, Lyman Hall, George Walton
Source: The Pennsylvania Packet, July 8, 1776
**copy of the constitution behind glass on wall in side
hallway leading to knonor wallachin's office**
THEM TO GRIST**people who possess great power in
**juan seeing accountant remember this man's kids have
been in and out of jail and he always wondered why? they
had a powerful dad, it made no sense.
just as Einstein was obsessed, all men and games neglect
their children
even einstein neglected his son
**juan seeing accountant remember this man's kids have
been in and out of jail and he always wondered why? they
had a powerful dad, it made no sense.

just as Einstein was obsessed, all men and games neglect

their children
even einstein neglected his son
when we hear reports or read documents that a member
of the highest eschelon has conned the proliteriate out of
money, we sense it is a red herring, because it does not
make sense that one of the gods would blunder about
it happens because they are human, because they have to
email or tell someone the story, commiserate as all people
do, but the criminal gets no encomium for.
the republican party is made up of
ignorant people resigned to
secreting from humanity, who think the most basic and
true way of life is secreting,
and who support the rich, who plainly, predictably and
live the way of life which is to steal from all humanity, to
money from the labor force, which within capitalism is not
called sin or deceit
but profit.
**mice on the constant lookout**death
in short, the people of the republican party believe they
are not their brothers' keepers.
the logical submit to receive power
so the open ended formulas of power
will inevitably be followed to infinity, and define future
insular world, scratches the itch of a particular market and
everybody else

'i love to have some art in here. See? I just HATE going to
museums or galleries. when you go to an art gallery you
are simply a tourist looking at the trophy cabinet of a few
billionaires, you know what I mean?'
**'Do you understand?'
**"When you go to an art gallery you are simply a tourist
looking at the trophy cabinet of a few millionaires."
**volker says after showing of his tulips tulipomania etc to
juan; lol! he IS a millionaire, and this IS his trophy cabinet'
the way of capitalism is to replace
murder (verb//action//transitive style)
with merchandize (verb//intransitive style)
**the Law of the Jungle remains extant, invisible intangible
Wrathbeast leaves death shards in it's interdimensional
wake**it travels**the Old Ones**
Goldman Sachs Blankfein on Banking: Doing Gods Work
By Matt Phillips
The Times of Londons mammoth 6,900-word piece on
Goldman Sachs over the weekend contains plenty of
fodder for those that see the investment bank as Wall
Streets top dog, as well as those that see it as a creepy,
conspiratorial vampire squid of finance.
But the key quote thats getting attention comes in
Goldman Chief Executive Lloyd Blankfeins exchange with
a reporter after a question on whether there should be
limits to compensation:
Is it possible to make too much money?
Is it possible to have too much ambition? Is it possible to
be too successful?
Blankfein shoots back.
I dont want people in this firm to think that they have
accomplished as much for themselves as they can and go

on vacation. As the guardian of the interests of the

shareholders and, by the way, for the purposes of society,
Id like them to continue to do what they are doing. I dont
want to put a cap on their ambition. Its hard for me to
argue for a cap on their compensation.
So, its business as usual, then, regardless of whether it
makes most people howl at the moon with rage?
Goldman Sachs, this pillar of the free market, breeder of
super-citizens, object of envy and awe will go on raking it
in, getting richer than God?
An impish grin spreads across Blankfeins face.
Call him a fat cat who mocks the public. Call him wicked.
Call him what you will.
**He is, he says, just a banker doing Gods work**
Even if you have serious questions about whether
investment banks actually perform a useful societal
function, theres no reason to get all bent out of shape
about Blankfeins comments. The impish grin, that
seems to go along with the abbreviated quote makes it
clear that the head Goldmanite just cant resist winding us
all up a bit.
At the same time, there does seem to be a strange uptick
in religious rhetoric from bankers lately, as they strive to
counter an upsurge in anti-banker sentiment. For example,
Time Magazines Justin Fox writes:
In a discussion about morality and markets at St. Pauls
Cathedral in London, Goldman Sachs international vice
chairman Brian Griffiths, a former adviser to Margaret
Thatcher, described giant paychecks for bankers as an
economic necessity.
**We have to tolerate the inequality as a way to achieve
greater prosperity and opportunity for all, he said.**
**affirmative action proves that we don't, though**

And the New York Times recently quoted John Varley, of

Barclays, telling an audience at Londons St. Martin-in-theFields that profit is not satanic.
Blankfeins wry comment that hes doing gods work
seems almost to be a veiled jab at this sort of religio-public
relations push, which to a serious banker of Blankfeins
stature, must seem somewhat silly.
Blankfein clearly knows who he works for. After all, God
couldnt aford him.
**Goldman Sachs Blankfein on Banking
+posters show positive of negative traits
+quote-if we lose we shall still have won, for our ideas will
have pierced the hearts of our enemies'
I lay myself before a fault you all because I am the
foremost authority and you may thereby connect to what
aspects you choose and thereby play into the knowledge.
1)apple = red (truth) + greenENVY
2) pope with sides of beef, a loon, your judgemental,
painting in vamj's office, refers to horace in abatoir,
**also has painting of 'pope with sides of beef'
**is that painting somewhere else?
**is it in vermilions secret room, a secret panic room on
jaco kidds semi, when jaco creeps of to meet with lord
vermilion, its on the wall at the end of the bed? no, the
painting 'jack the ripper's bedroom' by walter sickert is

**the two paintings reference each other, though**jack the

ripper's bedroom is a secret painting, and screaming pope
with sides of beef is a celebrated public painting**
the two wolves of the nordic master god (mortals in
america behave as the dogs of war, or the wolves)
vamj has statue of god with two wolves in his office, life
Young n dumb are really young and can see they have no
opportunities but to take chances and be brave = supports
fear ape theory
Young n dumb theory- look at cocky bruce willis when
**find model that we are just meat machines**psychology
of it**
the two wolves of the nordic master god (mortals in
america behave as the dogs of war, or the wolves)
vamj has statue of god with two wolves in his office, life
Young n dumb are really young and can see they have no
opportunities but to take chances and be brave = supports
fear ape theory
Young n dumb theory- look at cocky bruce willis when
twins raised by wolves to make rome remus and romulus
the vamj lives exactly as mother said, but mother hated
men (was a gorgon), so he lived as a tool of hate, and was
destroyed by extremists
**compare against rothschilds and rochefellers
**Remember, when you look into the abyss, the abyss
looks back into you. (similar to you become what you

**ALSO: Even if we lose we shall win, for our ideals will

have pierced the hearts of our enemies
**whatever you encounter incorporates into you; you can
never remove it
Remember, when you look into the abyss, the abyss looks
back into you. (similar to you become what you hate).
ALSO: Even if we lose we shall win, for our ideals will have
pierced the hearts of our enemies//beware to those who
would fight monsters lest they become monsters
juan headed back to the office- he was desperate for a cup
of cofee. cofee and office went together like they both
had two f's.
**Cofee and office went together like two efs.**
The Vikings
The Viking Age lasted traditionally from the late eighth
century to the eleventh century.
The Vikings came mostly from Denmark, Norway and
They were involved in trade and they established new
settlements in many diferent places: Iceland, Greenland,
Faroe Islands to name a few.
Famous cities like Dublin, Cork and Limerick in Ireland,
were founded by the Vikings.
The Vikings are more often remembered for their violent
raids, which caused extreme horror in many places
throughout Europe.
The first Viking raid that has been recorded was at
Lindisfarne on June 8, 793 A.D. Lindisfarne is an island of
the coast of north-east England. England had by that time

been introduced to Christianity. The monastery on the

island was a center for evangelizing in north England.
**evangelizing was originally done by making promises
that appealed to feeling good, safe, secure, and so done
through the church and with religion**
**today, evangelizing is also done by making promises
that appeal to provide safety and security, and so is done
through the government and employers and using money,
The Vikings slaughtered many; they drowned others in the
ocean and took some with them as slaves.
The Norse pagans stole most of the treasures in the
church. This extremely violent raid was a shock. The
Christians in England were appalled. Sadly this was just
the first of many vicious raids.
Most of the raiding Vikings had no scruples what so ever.
This can be somewhat explained by their belief and
worship of the Aesir, the gods of Asgard.
The Vikings believed they had no say as to how long they
would live.
The three Norns who resided under Yggdrasil had the
power to decide the life span of every living being. They
spun the thread of life. The Norns decided on what day
every human would die.
The Vikings also believed that the courageous men who
died during a battle would spend their afterlife with Odin or
Freyja. The Valkyries would come and fetch brave warriors
who died in battle and bring them to Asgard.
The goddess Freyja received half of all the dead warriors
and the chief god Odin received the other half.

There was no paradise for those who tried to live in

harmony or the do-gooders.
Anyone who did not die in battle was sent to live with Hel.
She ruled the world of the dead. Her territory was a
depressing and gloomy place.
**Ellen is Hel.**This is what i get for taking it easy**
There was yet another place the Norsemen could end up
spending their afterlife. This place was reserved only for
those who drowned at sea.
The ocean god was named Aegir. He was married to Ran.
Ran had a net and with that net she would catch anyone
who drowned.
They would spend their afterlife with Ran and Aegir at the
bottom of the ocean. Ran loved gold.
**Everyone who brought gold with them would be secured
good treatment in their afterlife should they drown at sea.
Vikings who brought back riches from their travels
received a high social status in their living life.
**paradise is the servitude of your fellow humans!!!!
**steve notes**
It seems it may have been a win-win situation for Vikings
going on bloody and cruel raids. If they died during the
fights, they most probably would avoid spending their
afterlife with Hel. Instead they would enjoy an afterlife with
either Odin or Freyja. If they survived and managed to
bring home treasures they would be rewarded an admired
by their fellow Norsemen while constantly climbing the
social latter.
**sounds stereotypical 'white' to me**
It must be told that not all Norsemen were fierce warriors.
There were those who traveled with the only intent of

trading merchandise. Some of these tradesmen settled in

new counties peacefully and intermarried with the locals.
Others were adventures who established new settlements
in unpopulated places. When Harald I (also known as
Harald Finehair) became king of Norway in 872 A.D. many
fled to Iceland to escape the new harsh laws imposed by
the king.
Q. If you were to spell out numbers, how far would you
have to go until you would find the letter "A"?
A. One thousand
111,111,111 x 111,111,111 = 12,345,678,987,654,321,
people don't know things like that. i am required to know
all things like that, to know all the known knowns,
unknown knowns...(list known knowns etc... like
washington guy did)
Vals Im Bashir means watz with bashir, director was ari
vamj name is Valsim Folman, meaning waltz with folman,
a diary just as mine is
**'valsim kronor'
Valsim says to javier/jesus
'when a man makes a beast of himself, one does away
with the pain of being a man' doctor johnson quote
'obviously, as proscribed, one should necessarily become a
all business majors subscribe to
the art of war, officer.
all liberal arts degrees fall to machiavelli.
we must all just do away with the pain.
emotions are for children. important decisions must be
seeing the reproving glint in javier's eye,

vamj made the shrewd play**stop**

of saying []at humbleness[]
'terrible decisions must be made'
[]he growled and gasped in awe of his own straw man.[]no,
[]vamj shrewdly played the humble servant, 'terrible
decisions must be made...[]
**this is the best version
name 'vadim' used in movie 'trade'
there is no 'ceo type,' there is only the type that mind
fucked successfully into being a ceo; a savage garden of
mind fireFlowers
**skull of savage pansies**
ingersoll-rand (company, name on equipment
to medal = take third
to medal-'our police department medals'
**'jesus, you and i both know our police department
medals. i need you to be better. i need you to...' add list of
strategies he wants, schemes**
Maybe the boss gets paid more because he's the grand
judge of
proper behaviour? A fill in for God?
a priest of business?
instead of just money hunting machines, as we picture him
organization needs basic logic = proof = vertebrates are
the large animals, = logic IS THE SPINE, the rule that
everything grows from
there are no giant jellyfish

look like the living but speak for the dead

Romanian form of Russian Vadim, probably meaning
"knowing one."
unlimited airline pass
+posters show positive of negative traits//1984
**juan sees him as he passes the real estate foreclosure
The ink-blot king with his ink-blot nose
foreshadows maid...narrator mentions as vamj is moving
about with his assistant
**this is the killer who kills fatima's husband**
**bulb nose**hitman**
no, juan is hispanic, and rey sepulveda is hispanic-vadim
mentions to make appointment to call
painting in vamj's office, refers to horace in abatoir,
--VADIM GIVES JUAN APPT-it's not what you know, it's who you know
if you don't know something worth knowing
it's not who you know, it's what you know
if you have special skills and training in one area
it's who you know and what you know
if you are trying to be a master of the Universe (Core)

in vadim's office juan/jesus thinks he's proud he knows

how to do something so he doesnt have to know a man
like vadim for survival - who you know and what you know
house - 300k for 100k
court - short for powerful, long for weak
income- based on usefulness; greatly comes from help
from family
business owners advantage - get materials/tools for
free/free use
social mobility
internet search
generations in america - house
art is emotion and logic and accident applied to life
which causes an appreciation
art is introspection applied to life
and is swept up in a style
six fingers six toes
24 altogether
all around
is translation of movement
like hundred handed ones!!!!
six means working, busy
six fingers six toes, man of evil, ambition, vadim
**villain from princess bride
**valdim keeps famous person's six fingered gloves**
Remember the scene in Gattaca where Ethan Hawke and
Uma Thurman's characters go to a piano concert featuring
music that can only be performed by a pianist with extra

fingers? Well, the song the pianist plays is called

"Impromptu for 12 fingers," and in case you hadn't
noticed, the guy pictured up top would be all over that.
In the film Gattaca, an arrangement of the Impromptu in
G-flat major, Op. 90, No. 3 by Michael Nyman is played in a
concert by a genetically "defective" pianist with twelve
fingers. The protagonist, who is genetically defective as
well (has myopia, a fragile body, etc.) and is hiding his
condition so as not to be discriminated, is astonished that
someone could be accepted and admired despite being
defective and says, "Twelve fingers or one, it's how you
play." To his dismay his counterpart responds, "That piece
can only be played with twelve fingers".
capitalism assumes a person will do the wrong thing, or
strive to do only what is best for them, it excludes
altruism, and thereby seeks to crush altruism
**implicitly kills altruism, spreads you too thin to be
capitalism assumes all people are rats.
went before him like a
blackening cloud
the weight of gold///with gold weight///with lead weight///of
lead weight//
the grandmaster who understands and sees and can
control other people's emotions rules the world
power is in emotional intelligence
**power is social intelligence, which is emotional and
material intelligence**
just as charles manson twisted the spirit of the bible and
jamie diamond twisted the spirit of finance and law

life is a meritocracy, society and civilization are not

vadim says - life is a meritocracy
klimpt, gustav-gold and eyes, resignation to filth of human
**'gold and eyes, resignation of filth to human life'
Keynesian economics
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Keynesian economics (pronounced /kenzin/ KAYN-zeen, also called Keynesianism and Keynesian theory) is a
macroeconomic theory based on the ideas of 20th century
British economist John Maynard Keynes.

Keynesian economics argues that private sector decisions

sometimes lead to inefficient macroeconomic outcomes
and therefore advocates active policy responses by the
public sector, including monetary policy actions by the
central bank and fiscal policy actions by the government to
stabilize output over the business cycle.[1]
The theories forming the basis of Keynesian economics
were first presented in The General Theory of
Employment, Interest and Money, published in 1936; the
interpretations of Keynes are contentious, and several
schools of thought claim his legacy.
Keynesian economics advocates a mixed economy
predominantly private sector, but with a large role of
government and public sectorand served as the
economic model during the latter part of the Great
Depression, World War II, and the post-war economic
expansion (19451973), though it lost some influence
following the stagflation of the 1970s.
The advent of the global financial crisis in 2007 has caused
a resurgence in Keynesian thought. The former British
Prime Minister Gordon Brown, former President of the
United States George W. Bush, President Barack Obama,
and other world leaders have used Keynesian economics
through government stimulus programs to attempt to
assist the economic state of their countries.[2][3]
According to Keynesian theory, some microeconomic-level
actionsif taken collectively by a large proportion of
individuals and firmscan lead to inefficient aggregate
macroeconomic outcomes, where the economy operates
below its potential output and growth rate. Such a
situation had previously been referred to by classical
economists as a general glut.

There was disagreement among classical economists

(some of whom believed in
**Say's Lawthat "supply creates its own demand"),
on whether a general glut was possible. Keynes contended
that a general glut would occur when aggregate demand
for goods was insufficient, leading to an economic
downturn with unnecessarily high unemployment and
losses of potential output. In such a situation, government
policies could be used to increase aggregate demand, thus
increasing economic activity and reducing unemployment
and deflation.
Most Keynesians advocate an activist stabilization policy to
reduce the amplitude of the business cycle, which they
rank among the most serious of economic problems.
This does not necessarily mean fine-tuning, but it does
mean what might be called 'coarse-tuning.' For example,
when the unemployment rate is very high, a government
can use a dose of expansionary monetary policy.
Keynes argued that the solution to the Great Depression
was to stimulate the economy ("inducement to invest")
through some combination of two approaches:
a reduction in interest rates and
government investment in infrastructure.
Investment by government injects income, which results in
more spending in the general economy, which in turn
stimulates more production and investment involving still
more income and spending and so forth. The initial
stimulation starts a cascade of events, whose total
increase in economic activity is a multiple of the original

A central conclusion of Keynesian economics is that, in

some situations, no strong automatic mechanism moves
output and employment towards full employment levels.
This conclusion conflicts with economic approaches that
assume a strong general tendency towards equilibrium.
In the 'neoclassical synthesis', which combines Keynesian
macro concepts with a micro foundation, the conditions of
general equilibrium allow for price adjustment to
eventually achieve this goal.
More broadly, Keynes saw his theory as a general theory,
in which utilization of resources could be high or low,
whereas previous economics focused on the particular
case of full utilization.
The new classical macroeconomics movement, which
began in the late 1960s and early 1970s, criticized
Keynesian theories, while New Keynesian economics has
sought to base Keynes' ideas on more rigorous theoretical
Some interpretations of Keynes have emphasized his
stress on the international coordination of Keynesian
policies, the need for international economic institutions,
and the ways in which economic forces could lead to war
or could promote peace.[5]
Keynes's work was part of a long-running debate within
economics over the existence and nature of general gluts.
While a number of the policies Keynes advocated (notably
government deficit spending) and the theoretical ideas he
proposed (efective demand, the multiplier, the paradox of
thrift) were advanced by various authors in the 19th and
early 20th century, Keynes's unique contribution was to
provide a general theory of these, which proved

acceptable to the political and economic establishments.

See also: Underconsumption, Birmingham School
(economics), and Stockholm school (economics)
An intellectual precursor of Keynesian economics was
**underconsumption theory in classical economics,
dating from such 19th century economists as Thomas
Malthus, the Birmingham School of Thomas Attwood,[6]
and the American economists William Trufant Foster and
Waddill Catchings, who were influential in the 1920s and
Underconsumptionists were, like Keynes after them,
concerned with failure of aggregate demand to attain
potential output, calling this "underconsumption" (focusing
on the demand side), rather than "overproduction" (which
would focus on the supply side), and advocating economic
Keynes specifically discussed underconsumption (which he
wrote "under-consumption") in the General Theory, in
Chapter 22, Section IV and Chapter 23, Section VII.
Numerous concepts were developed earlier and
independently of Keynes by the Stockholm school during
the 1930s; these accomplishments were described in a
1937 article, published in response to the 1936 General
Theory, sharing the Swedish discoveries.[7]
The multiplier dates to work in the 1890s by the Australian
economist Alfred De Lissa, the Danish economist Julius
Wulf, and the German American economist Nicholas
Johannsen,[8] the latter being cited in a footnote of
Keynes.[9] Nicholas Johannsen also proposed a theory of

efective demand in the 1890s.

The paradox of thrift was stated in 1892 by John M.
Robertson in his The Fallacy of Savings, in earlier forms by
mercantilist economists since the 16th century, and similar
sentiments date to antiquity:[10][11]
'Today these ideas, regardless of provenance, are referred
to in academia under the rubric of "Keynesian economics",
due to Keynes's role in consolidating, elaborating, and
popularizing them.'
Keynes and the classics
Keynes sought to distinguish his theories from and oppose
them to "classical economics," by which he meant the
economic theories of David Ricardo and his followers,
including John Stuart Mill, Alfred Marshall, Francis Ysidro
Edgeworth, and Arthur Cecil Pigou.
A central tenet of the classical view, known as Say's law,
states that "supply creates its own demand".
Say's Law can be interpreted in two ways.
First, the claim that the total value of output is equal to the
sum of income earned in production is a result of a
national income accounting identity, and is therefore
A second and stronger claim, however, that the "costs of
output are always covered in the aggregate by the saleproceeds resulting from demand" depends on how
consumption and saving are linked to production and
In particular, Keynes argued that the second, strong form
of Say's Law only holds if increases in individual savings
exactly match an increase in aggregate investment.[12]
Keynes sought to develop a theory that would explain

determinants of saving, consumption, investment and

production. In that theory, the interaction of aggregate
demand and aggregate supply determines the level of
output and employment in the economy.
Because of what he considered the failure of the Classical
Theory in the 1930s, Keynes firmly objects to
**its main theoryadjustments in prices would
automatically make demand tend to the full employment
**Neo-classical theory supports that the two main costs
that shift demand and supply are labor and money.
**steve says, they were discovering that money is a
human-based system, not a geo-based system... maybe
due to conversion of money from the gold standard to
confidence standard**
Through the distribution of the monetary policy, demand
and supply can be adjusted.
If there were more labor than demand for it, wages would
fall until hiring began again. If there was too much saving,
and not enough consumption, then interest rates would fall
until people either cut their savings rate or started
**steve says, the only way to get out ahead of these
factors, or to guess which will happen first, is to have a
finger on the pulse of those people who control
government and who may or may not intervene in what is
happening in the ebb and flow of econonmy**therefore,
those who are primarily social predators, cockroaches, and
nest into the people with power, will survive better than
people who are great workers and thinkers, because the
cockroach will know which way to place a bet due to their
social interaction with the person making immediate and
direct changes to the economy, and the cockroach will

know which way to bet**compare to members of congress

making money on insider trading bets that do go
Wages and spending
During the Great Depression, the classical theory defined
economic collapse as simply a lost incentive to produce,
and the mass unemployment as a result of high and rigid
real wages.[citation needed]
To Keynes, the determination of wages is more
First, he argued that it is not real but nominal wages that
are set in negotiations between employers and workers, as
opposed to a barter relationship.
Second, nominal wage cuts would be difficult to put into
efect because of laws and wage contracts.
Even classical economists admitted that these exist; unlike
Keynes, they advocated abolishing minimum wages,
unions, and long-term contracts, increasing labor-market
However, to Keynes, people will resist nominal wage
reductions, even without unions, until they see other
wages falling and a general fall of prices.
He also argued that to boost employment, real wages had
to go down: nominal wages would have to fall more than
However, doing so would reduce consumer demand, so
that the aggregate demand for goods would drop. This
would in turn reduce business sales revenues and
expected profits. Investment in new plants and equipment
perhaps already discouraged by previous excesses
would then become more risky, less likely. Instead of

raising business expectations, wage cuts could make

matters much worse.
Further, if wages and prices were falling, people would
start to expect them to fall. This could make the economy
spiral downward as those who had money would simply
wait as falling prices made it more valuablerather than
As Irving Fisher argued in 1933, in his Debt-Deflation
Theory of Great Depressions, deflation (falling prices) can
make a depression deeper as falling prices and wages
made pre-existing nominal debts more valuable in real
Excessive saving
To Keynes, excessive saving, i.e. saving beyond planned
investment, was a serious problem, encouraging recession
or even depression.
Excessive saving results if investment falls, perhaps due to
falling consumer demand, over-investment in earlier years,
or pessimistic business expectations, and if saving does
not immediately fall in step, the economy would decline.
**steve says, the everyperson is too busy INVESTING in
their everyday survival right now, to SAVE money for the
The classical economists argued that interest rates would
fall due to the excess supply of "loanable funds". The first
diagram, adapted from the only graph in The General
Theory, shows this process. (For simplicity, other sources
of the demand for or supply of funds are ignored here.)
Assume that fixed investment in capital goods falls from
"old I" to "new I" (step a).
Second (step b), the resulting excess of saving causes

interest-rate cuts, abolishing the excess supply: so again

we have saving (S) equal to investment. The interest-rate
(i) fall prevents that of production and employment.
**this is the reason that our economic model is obsessed
with growth; the characteristic of the relationship between
money and those possessing it is such that the owners of
money want their money to labor for them, like a machine
army, and it works by exploiting the life force of other
**money is organization, and there is a price for being
inside of organization, unless you own The System of
**the Organizers still work, with their minds, but they do
not Labor, with their bodies, and their incomes are
unlimited, because they exploit the Unknown Frontier of
money in the future, death's wake in the future, whereas
the income for Labor is limited, since the wage is based on
the lowest the population of fellows, peers, is willing to
go**the Organizers know that the best and the second
best have the same value, just as Affirmative Action has
proven, so they rely on Loyalty and Secrecy to claim that
they deserve unlimited income**Labor gets Enslaved
Individualism, while Organizers get Freedom
Keynes had a complex argument against this laissez-faire
The graph below summarizes his argument, assuming
again that fixed investment falls (step A).
First, saving does not fall much as interest rates fall, since
the income and substitution efects of falling rates go in
conflicting directions.
Second, since planned fixed investment in plant and
equipment is mostly based on long-term expectations of
future profitability, that spending does not rise much as

interest rates fall.

So S and I are drawn as steep (inelastic) in the graph.
Given the inelasticity of both demand and supply,
**a large interest-rate fall is needed to close the
saving/investment gap.
As drawn, this requires a negative interest rate at
equilibrium (where the new I line would intersect the old S
line). However, this negative interest rate is not necessary
to Keynes's argument.
Third, Keynes argued that saving and investment are not
the main determinants of interest rates, especially in the
short run. Instead,
**the supply of and the demand for the stock of money
determine interest rates in the short run. (This is not drawn
in the graph.)
Neither changes quickly in response to excessive saving to
allow fast interest-rate adjustment.
**Finally, because of fear of capital losses on assets
besides money, Keynes suggested that there may be a
"liquidity trap" setting a floor under which interest rates
cannot fall.
While in this trap, interest rates are so low that any
increase in money supply will cause bond-holders (fearing
rises in interest rates and hence capital losses on their
bonds) to sell their bonds to attain money (liquidity).
In the diagram, the equilibrium suggested by the new I line
and the old S line cannot be reached, so that excess
saving persists. Some (such as Paul Krugman) see this
latter kind of liquidity trap as prevailing in Japan in the
1990s. Most economists agree that nominal interest rates

cannot fall below zero.

**However, some economists (particularly those from the
Chicago school) reject the existence of a liquidity trap.
Even if the liquidity trap does not exist, there is a fourth
(perhaps most important) element to Keynes's critique.
Saving involves not spending all of one's income. It thus
means insufficient demand for business output, unless it is
balanced by other sources of demand, such as fixed
Thus, excessive saving corresponds to an unwanted
accumulation of inventories, or what classical economists
called a general glut.[13]
This pile-up of unsold goods and materials encourages
businesses to decrease both production and employment.
This in turn lowers people's incomesand saving, causing
a leftward shift in the S line in the diagram (step B). For
Keynes, the fall in income did most of the job by ending
excessive saving and allowing the loanable funds market
to attain equilibrium. Instead of interest-rate adjustment
solving the problem, a recession does so. Thus in the
diagram, the interest-rate change is small.
Whereas the classical economists assumed that the level
of output and income was constant and given at any one
time (except for short-lived deviations), Keynes saw this as
the key variable that adjusted to equate saving and
Finally, a recession undermines the business incentive to
engage in fixed investment.
**With falling incomes and demand for products, the
desired demand for factories and equipment (not to
mention housing) will fall.

This accelerator efect would shift the I line to the left

again, a change not shown in the diagram above. This
recreates the problem of excessive saving and encourages
the recession to continue.
In sum, to Keynes there is interaction between excess
supplies in diferent markets, as unemployment in labor
markets encourages excessive savingand vice-versa.
Rather than prices adjusting to attain equilibrium, the main
story is one of quantity adjustment allowing recessions
and possible attainment of underemployment equilibrium.
Active fiscal policy
**As noted,[clarification needed] the classicals wanted to
balance the government budget.
**To Keynes, this would exacerbate the underlying
problem: following either policy[clarification needed] would
raise saving (broadly defined) and thus lower the demand
for both products and labor.
For example, Keynesians see Herbert Hoover's June 1932
tax increase as making the Depression worse.
Keynes ideas influenced Franklin D. Roosevelt's view that
insufficient buying-power caused the Depression.
During his presidency, Roosevelt adopted some aspects of
Keynesian economics, especially after 1937, when, in the
depths of the Depression, the United States sufered from
recession yet again following fiscal contraction.
But to many the true success of Keynesian policy can be
seen at the onset of World War II, which provided a kick to
the world economy, removed uncertainty, and forced the
rebuilding of destroyed capital. Keynesian ideas became
almost official in social-democratic Europe after the war
and in the U.S. in the 1960s.

Keynes theory suggested that active government policy

could be efective in managing the economy. Rather than
seeing unbalanced government budgets as wrong, Keynes
advocated what has been called countercyclical fiscal
policies, that is policies which acted against the tide of the
business cycle: deficit spending when a nation's economy
sufers from recession or when recovery is long-delayed
and unemployment is persistently highand the
suppression of inflation in boom times by either increasing
taxes or cutting back on government outlays.
**He argued that governments should solve problems in
the short run rather than waiting for market forces to do it
in the long run, because
**"in the long run, we are all dead."[14]
This contrasted with the classical and neoclassical
economic analysis of fiscal policy.
Fiscal stimulus (deficit spending) could actuate production.
But to these schools, there was no reason to believe that
this stimulation would outrun the side-efects that "crowd
out" private investment:
first, it would increase the demand for labor and raise
wages, hurting profitability;
Second, a government deficit increases the stock of
government bonds, reducing their market price and
encouraging high interest rates, making it more expensive
for business to finance fixed investment. Thus, eforts to
stimulate the economy would be self-defeating.
The Keynesian response is that such fiscal policy is only
appropriate when unemployment is persistently high,
above the

**non-accelerating inflation rate of unemployment

In that case, crowding out is minimal. Further, private
investment can be "crowded in": fiscal stimulus raises the
market for business output, raising cash flow and
profitability, spurring business optimism.
**To Keynes, this accelerator efect meant that
government and business could be complements rather
than substitutes in this situation.
Second, as the stimulus occurs, gross domestic product
rises, raising the amount of saving, helping to finance the
increase in fixed investment.
Finally, government outlays need not always be wasteful:
government investment in public goods that will not be
provided by profit-seekers will encourage the private
sector's growth.
That is, government spending on such things as basic
research, public health, education, and infrastructure could
help the long-term growth of potential output.
A Keynesian economist might point out that classical and
neoclassical theory does not explain why firms acting as
"special interests" to influence government policy are
assumed to produce a negative outcome, while those
same firms acting with the same motivations outside of
the government are supposed to produce positive
**Libertarians counter that because both parties consent,
free trade increases net happiness, but government
imposes its will by force, decreasing happiness. Therefore
firms that manipulate the government do net harm, while
firms that respond to the free market do net good.

Theoretically, in a democracy, the populace consents to or

refutes government policy through elections and could
thereby be considered a consenting party not subjected
unilaterally to the government's will.
In Keynes' theory, there must be significant slack in the
labor market before fiscal expansion is justified.
Both conservative and some neoliberal economists
question this assumption, unless labor unions or the
government "meddle" in the free market, creating
persistent supply-side or classical unemployment.
clarification needed]
Their solution is to increase labor-market flexibility, e.g., by
cutting wages, busting unions, and deregulating business.
Contrary to some critical characterizations of it,
Keynesianism does not consist solely of deficit spending.
Keynesianism recommends counter-cyclical policies to
smooth out fluctuations in the business cycle. An example
of a counter-cyclical policy is raising taxes to cool the
economy and to prevent inflation when there is abundant
demand-side growth, and engaging in deficit spending on
labor-intensive infrastructure projects to stimulate
employment and stabilize wages during economic
Classical economics, on the other hand, argues that one
should cut taxes when there are budget surpluses, and cut
spendingor, less likely, increase taxesduring economic
downturns. Keynesian economists believe that adding to
profits and incomes during boom cycles through tax cuts,
and removing income and profits from the economy
through cuts in spending and/or increased taxes during
downturns, tends to exacerbate the negative efects of the
business cycle.
This efect is especially pronounced when the government
controls a large fraction of the economy, and is therefore
one reason fiscal conservatives advocate a much smaller

"Multiplier efect" and interest rates
Main article: Spending multiplier
Two aspects of Keynes' model had implications for policy:
First, there is the "Keynesian multiplier", first developed by
Richard F. Kahn in 1931. Exogenous increases in spending,
such as an increase in government outlays, increases total
spending by a multiple of that increase. A government
could stimulate a great deal of new production with a
modest outlay if:
The people who receive this money then spend most on
consumption goods and save the rest.
This extra spending allows businesses to hire more people
and pay them, which in turn allows a further increase
consumer spending.
This process continues. At each step, the increase in
spending is smaller than in the previous step, so that the
multiplier process tapers of and allows the attainment of
an equilibrium. This story is modified and moderated if we
move beyond a "closed economy" and bring in the role of
taxation: the rise in imports and tax payments at each
step reduces the amount of induced consumer spending
and the size of the multiplier efect.
Second, Keynes re-analyzed the efect of the interest rate
on investment. In the classical model, the supply of funds
(saving) determined the amount of fixed business
investment. That is, since all savings was placed in banks,
and all business investors in need of borrowed funds went
to banks, the amount of savings determined the amount
that was available to invest.
To Keynes, the amount of investment was determined
independently by long-term profit expectations and, to a

lesser extent, the interest rate. The latter opens the

possibility of regulating the economy through money
supply changes, via monetary policy. Under conditions
such as the Great Depression, Keynes argued that this
approach would be relatively inefective compared to fiscal
policy. But during more "normal" times, monetary
expansion can stimulate the economy.[citation needed]
Postwar Keynesianism
Main articles: Neo-Keynesian economics, New Keynesian
economics, and Post-Keynesian economics
Keynes's ideas became widely accepted after WWII, and
until the early 1970s, Keynesian economics provided the
main inspiration for economic policy makers in Western
industrialized countries.[15]
Governments prepared high quality economic statistics on
an ongoing basis and tried to base their policies on the
Keynesian theory that had become the norm.
**In the early era of new liberalism and social democracy,
**most western capitalist countries enjoyed low, stable
unemployment and modest inflation,
**an era called the Golden Age of Capitalism.
In terms of policy, the twin tools of post-war Keynesian
economics were fiscal policy and monetary policy. While
these are credited to Keynes, others, such as economic
historian David Colander, argue that they are rather due to
the interpretation of Keynes by Abba Lerner in his theory of
Functional Finance, and should instead be called
"Lernerian" rather than "Keynesian".[16]
Through the 1950s, moderate degrees of government
demand leading industrial development, and use of fiscal
and monetary counter-cyclical policies continued, and
reached a peak in the "go go" 1960s, where it seemed to
many Keynesians that prosperity was now permanent.

In 1971, Republican US President Richard Nixon even

proclaimed "we are all Keynesians now".[17] However,
with the oil shock of 1973, and the economic problems of
the 1970s, modern liberal economics began to fall out of
favor. During this time, many economies experienced high
and rising unemployment, coupled with high and rising
inflation, contradicting the Phillips curve's prediction.
This stagflation meant that the simultaneous application of
expansionary (anti-recession) and contractionary (antiinflation) policies appeared to be necessary, a clear
This dilemma led to the end of the Keynesian nearconsensus of the 1960s, and the rise throughout the 1970s
of ideas based upon more classical analysis, including
monetarism, supply-side economics[17] and new classical
At the same time Keynesians began during the period to
reorganize their thinking (some becoming associated with
New Keynesian economics); one strategy, utilized also as a
critique of the notably high unemployment and potentially
disappointing GNP growth rates associated with the latter
two theories by the mid-1980s, was to emphasize low
unemployment and maximal economic growth at the cost
of somewhat higher inflation (its consequences kept in
check by indexing and other methods, and its overall rate
kept lower and steadier by such potential policies as
Martin Weitzman's share economy).[18]
Currently, multiple schools of economic thought exist that
trace their legacy to Keynes, notably Neo-Keynesian
economics, New Keynesian economics, and Post-Keynesian
Keynes' biographer Robert Skidelsky writes that the postKeynesian school has remained closest to the spirit of

Keynes' work in following his monetary theory and

rejecting the neutrality of money.[19][20]
In the postwar era Keynesian analysis was combined with
neoclassical economics to produce what is generally
termed the "neoclassical synthesis", yielding NeoKeynesian economics, which dominated mainstream
macroeconomic thought.
Though it was widely held that there was no strong
automatic tendency to full employment, many believed
that if government policy were used to ensure it, the
economy would behave as neoclassical theory predicted.
This post-war domination by Neo-Keynesian economics
was broken during the stagflation of the 1970s.
There was a lack of consensus among macroeconomists in
the 1980s.
However, the advent of New Keynesian economics in the
1990s, modified and provided microeconomic foundations
for the neo-Keynesian theories. These modified models
now dominate mainstream economics.
Post-Keynesian economists on the other hand, reject the
neoclassical synthesis, and more generally, neoclassical
economics applied to the macroeconomy.
Post-Keynesian economics is a heterodox school which
holds that both Neo-Keynesian economics and New
Keynesian economics are incorrect, and a
misinterpretation of Keynes's ideas. The Post-Keynesian
school encompasses a variety of perspectives, but has
been far less influential than the other more mainstream
Keynesian schools.
Main theories
The two key theories of mainstream Keynesian economics

the IS-LM model of John Hicks and
the Phillips curve;
both of these are rejected by Post-Keynesians.
It was with John Hicks that Keynesian economics produced
a clear model which policy-makers could use to attempt to
understand and control economic activity. This model, the
IS-LM model is nearly as influential as Keynes' original
analysis in determining actual policy and economics
It relates aggregate demand and employment to three
exogenous quantities, i.e., the amount of money in
circulation, the government budget, and the state of
business expectations. This model was very popular with
economists after World War II because it could be
understood in terms of general equilibrium theory. This
encouraged a much more static vision of macroeconomics
than that described above.[citation needed]
**The second main part of a Keynesian policy-maker's
theoretical apparatus was the Phillips curve.
This curve, which was more of an empirical observation
than a theory, indicated that increased employment, and
decreased unemployment, implied increased inflation.
Keynes had only predicted that falling unemployment
would cause a higher price, not a higher inflation rate.
Thus, the economist could use the IS-LM model to predict,
for example, that an increase in the money supply would
raise output and employmentand then use the Phillips
curve to predict an increase in inflation. [citation needed]
Monetarist criticism

One school began in the late 1940s with Milton Friedman.

Instead of rejecting macro-measurements and macromodels of the economy, the monetarist school embraced
the techniques of treating the entire economy as having a
supply and demand equilibrium.
However, because of Irving Fisher's equation of exchange,
they regarded inflation as solely being due to the
variations in the money supply, rather than as being a
consequence of aggregate demand. They argued that the
"crowding out" efects discussed above would hobble or
deprive fiscal policy of its positive efect. Instead, the focus
should be on monetary policy, which was considered
inefective by early Keynesians.
Monetarism had an ideological as well as a practical
appeal: monetary policy does not, at least on the surface,
imply as much government intervention in the economy as
other measures.
The monetarist critique pushed Keynesians toward a more
balanced view of monetary policy, and inspired a wave of
revisions to Keynesian theory.
New classical macroeconomics criticism
See also: Lucas critique
Another influential school of thought was based on the
Lucas critique of Keynesian economics.
This called for greater consistency with microeconomic
theory and rationality, and particularly emphasized the
idea of rational expectations.
Lucas and others argued that
**Keynesian economics required remarkably foolish and
short-sighted behavior from people,

which totally contradicted the economic understanding of

their behavior at a micro level.
New classical economics introduced a set of
macroeconomic theories which were based on optimising
microeconomic behavior.
**These models have been developed into the
**Real Business Cycle Theory
, which argues that business cycle fluctuations can to a
large extent be accounted for by real (in contrast to
nominal) shocks.
Austrian School criticism
Austrian economist
**Friedrich Hayek
criticized Keynesian economic policies for what he called
their fundamentally collectivist approach, arguing that
such theories encourage centralized planning, which leads
to malinvestment of capital, which is the cause of business
Hayek also argued that Keynes' study of the aggregate
relations in an economy is fallacious, as recessions are
caused by micro-economic factors. Hayek claimed that
what starts as temporary governmental fixes usually
become permanent and expanding government programs,
which stifle the private sector and civil society.
Other Austrian school economists have also attacked
Keynesian economics.
Henry Hazlitt criticized, paragraph by paragraph, Keynes'
General Theory.[22]
Murray Rothbard accuses Keynesianism of having "its roots
deep in medieval and mercantilist thought."[23]

Methodological disagreement and diferent results that

Beginning in the late 1950s neoclassical macroeconomists
began to disagree with the methodology employed by
Keynes and his successors.
Keynesians emphasized the dependence of consumption
on disposable income and, also, of investment on current
profits and current cash flow. In addition Keynesians
posited a Phillips curve that tied nominal wage inflation to
unemployment rate.
To buttress these theories Keynesians typically traced the
logical foundations of their model (using introspection) and
buttressed their assumptions with statistical evidence.[24]
Neoclassical theorists demanded that macroeconomics be
grounded on the same foundations as microeconomic
theory, profit-maximizing firms and utility maximizing
The result of this shift in methodology produced several
important divergences from Keynesian Macroeconomics:
4. **Independence of Consumption and current Income
(life-cycle permanent income hypothesis)
5. **Irrelevance of Current Profits to Investment
(Modigliani-Miller theorem)
6. **Long run independence of inflation and
unemployment (natural rate of unemployment)
7. **The inability of monetary policy to stabilize output
(rational expectations)
8. **Irrelevance of Taxes and Budget Deficits to
Consumption (Ricardian Equivalence)
Keynesian responses to the critics

The heart of the 'new Keynesian' view rests on

microeconomic models that indicate that nominal wages
and prices are "sticky," i.e., do not change easily or quickly
with changes in supply and demand, so that quantity
adjustment prevails.
According to economist Paul Krugman, "while I regard the
evidence for such stickiness as overwhelming, the
assumption of at least temporarily rigid nominal prices is
one of those things that works beautifully in practice but
very badly in theory."[25]
This integration is further spurred by the work of other
economists which questions rational decision-making in a
perfect information environment as a necessity for microeconomic theory. Imperfect decision making such as that
investigated by Joseph Stiglitz underlines the importance
of management of risk in the economy.
Over time, many macroeconomists have returned to the
IS-LM model and the Phillips curve as a first approximation
of how an economy works.
New versions of the Phillips curve, such as the "Triangle
Model", allow for stagflation, since the curve can shift due
to supply shocks or changes in built-in inflation.
In the 1990s, the original ideas of "full employment" had
been modified by the
**NAIRU doctrine, sometimes called the "natural rate of
NAIRU advocates suggest restraint in combating
unemployment, in case accelerating inflation should result.
However, it is unclear exactly what the value of the NAIRU
should beor whether it even exists.
The Crash of 2008 led to a revival of interest in and debate

about Keynes. Keynes's biographer, Robert Skidelsky,

wrote a book entitled Keynes: The Return of the Master.
[26] Other books about Keynes published immediately
following the Crash were generally favorable.[27]
See also
% Constitutional economics
% Functional finance
% Job guarantee
% Keynesian formula
% Microfoundations
% Military Keynesianism
% New Keynesian economics
% Perspectives on Capitalism
% Post-Keynesian economics
% State capitalism
% Underconsumption
20082009 Keynesian resurgence
Keynesian economics
breaves, bettina - free market economics - america has
solidified as a metaphorical jungle, the essential nature
can only be seen in as thought - compare to fractal jungle
Greater fool theory
From Wikipedia, the free encyclopedia
The greater fool theory (also called survivor investing) is
the belief held by one who makes a questionable
investment, with the assumption that they will be able to
sell it later to "a greater fool"; in other words, buying
something not because you believe that it is worth the
price, but rather because you believe that you will be able
to sell it to someone else at an even higher price.[1]
It is similar in concept to the Keynesian beauty contest
principle of stock investing.

Some consider it a valid method of making money in the

stock market, particularly
**momentum investors
; however, fundamental investors believe that market
participants eventually realize that the price level is too
outrageous (too high or too low) and the speculative
bubble pops.
The greater fool theory relies on market optimism and
market momentum concerning a particular stock, an
industry, or the market as a whole.
The opposite of the greater fool theory is value investing,
or contrarian investing, which tries to discount, or even
actively go against, the prevailing market psychology.
Value investors such as Warren Bufett believe that it is
corporate profits which are the normal returns from stock
investments and any higher return is possible only due to
the greater fool theory.
See also
Greater fool theory
**'I made my first million of a Greater Fool', Valdim says to
Tulip mania
From Wikipedia, the free encyclopedia
A tulip, known as "the Viceroy", displayed in a 1637 Dutch
Its bulb cost between 3000 and 4200 florins depending on
size. A skilled craftsman at the time earned about 300
florins a year.[1]

Tulip mania or tulipomania (Dutch names include:

tulpenmanie, tulpomanie, tulpenwoede, tulpengekte and
bollengekte) was a period in the
**Dutch Golden Age
during which contract prices for bulbs of the recently
introduced tulip reached extraordinarily high levels and
then suddenly collapsed.[2]
At the peak of tulip mania, in February 1637, some single
tulip bulbs sold for more than 10 times the annual income
of a skilled craftsman.
It is generally considered the first recorded speculative
bubble (or economic bubble),[3] although some
researchers have noted that the Kipper- und Wipperzeit
episode in 161922, a Europe-wide chain of debasement of
the metal content of coins to fund warfare, featured
mania-like similarities to a bubble.[4]
The term "tulip mania" is now often used metaphorically to
refer to any large economic bubble (when asset prices
deviate from intrinsic values).[5]
The event was popularized in 1841 by the book
Extraordinary Popular Delusions and the Madness of
Crowds, written by British journalist Charles Mackay.
According to Mackay, at one point 12 acres (5 ha) of land
were ofered for a Semper augustus bulb.[6] Mackay
claims that many such investors were ruined by the fall in
prices, and Dutch commerce sufered a severe shock.
Although Mackay's book is a classic that is widely reprinted
today, his account is contested. Many modern scholars
believe that the mania was not as extraordinary as Mackay
described, with some arguing that the price changes may
not have constituted a bubble.[7][8]

Research on the tulip mania is difficult because of the

limited data from the 1630smuch of which comes from
biased and anti-speculative sources.[9][10] Although these
explanations are not generally accepted, some modern
economists have proposed rational explanations, rather
than a speculative mania, for the rise and fall in prices. For
example, other flowers, such as the hyacinth, also had
high prices on the flower's introduction, which then fell
dramatically. The high prices may also have been driven
by expectations of a parliamentary decree that contracts
could be voided for a small costthus lowering the risk to
An allegory of tulip mania by Hendrik Gerritsz Pot, circa
1640. Flora, the goddess of flowers, is blown by the wind
and rides with a tippler, money changers and the twofaced goddess Fortuna. They are followed by dissolute
Haarlem weavers, on their way to destruction in the sea.
The tulip was introduced to Europe in the mid-16th century
from the Ottoman Empire, and became very popular in the
United Provinces (now the Netherlands).[11]
Tulip cultivation in the United Provinces is generally
thought to have started in earnest around 1593 after the
Flemish botanist Charles de l'cluse had taken up a post at
the University of Leiden and established the hortus
academicus.[12] There, he planted his collection of tulip
bulbssent to him from Turkey by the Emperor's
(Ferdinand I, Holy Roman Emperor) ambassador to the
Sultan, Ogier de Busbecqwhich were able to tolerate the
harsher conditions of the Low Countries,[13] and it was
shortly thereafter they began to grow in popularity.[14]
The flower rapidly became a coveted luxury item and a
status symbol, and a profusion of varieties followed. They
were classified in groups; one-coloured tulips of red,

yellow, or white were known as Couleren, but it was the

multicoloured Rosen (red or pink on white background),
Violetten (purple or lilac on white background), and, to a
lesser extent, the Bizarden (red, brown or purple on yellow
background) that were the most popular.[15]
These spectacular and highly sought-after tulip bulbs
would grow flowers with vivid colors, lines, and flames on
the petals, as a result, it is now understood, of being
infected with a tulip-specific virus known as the "Tulip
breaking virus", a type of mosaic virus.[16][17]
Still-Life of Flowers by Ambrosius Bosschaert (15731621)
of the Dutch Golden Age
Growers named their new varieties with exalted titles.
Many early forms were prefixed Admirael ("admiral"), often
combined with the growers' namesAdmirael van der
Eijck was perhaps the most highly regarded of about fifty
so named. Generael ("general") was another prefix that
found its way into the names of around thirty varieties.
Later came varieties with even more superb names,
derived from Alexander the Great or Scipio, or even
"Admiral of Admirals" and "General of Generals". However,
naming could be haphazard and varieties highly variable in
quality.[18] Most of these varieties have now died out,[19]
though similar "broken" tulips continue in the trade.
Tulips grow from bulbs, and can be propagated through
both seeds and buds. Seeds from a tulip will form a
flowering bulb after 712 years. When a bulb grows into
the flower, the original bulb will disappear, but a clone
bulb forms in its place, as do several buds. [citation needed]
Properly cultivated, these buds will become bulbs of their
The mosaic virus spreads only through buds, not seeds,
and so cultivating the most appealing varieties takes

years. Propagation is greatly slowed down by the virus.

Tulips bloom in April and May for only about a week, and
the secondary buds appear shortly thereafter. Bulbs can be
uprooted and moved about from June to September, and
thus actual purchases (in the spot market) occurred during
these months.[20]
During the rest of the year, traders signed contracts before
a notary to purchase tulips at the end of the season
(efectively futures contracts).[20] Thus the Dutch, who
developed many of the techniques of modern finance,
created a market for durable tulip bulbs.[11]
Short selling was banned by an edict of 1610, which was
reiterated or strengthened in 1621 and 1630, and again in
1636. Short sellers were not prosecuted under these
edicts, but their contracts were deemed unenforceable.
A standardized price index for tulip bulb contracts, created
by Earl Thompson.
Thompson had no price data between February 9 and May
1, thus the shape of the decline is unknown. The tulip
market is known, however, to have collapsed abruptly in
As the flowers grew in popularity, professional growers
paid higher and higher prices for bulbs with the virus. By
1634, in part as a result of demand from the French,
speculators began to enter the market.[23]
In 1636, the Dutch created a type of formal futures
markets where contracts to buy bulbs at the end of the
season were bought and sold.
Traders met in "colleges" at taverns and buyers were
required to pay a 2.5% "wine money" fee, up to a

maximum of three florins, per trade. Neither party paid an

initial margin nor a mark-to-market margin, and all
contracts were with the individual counter-parties rather
than with the exchange. No deliveries were ever made to
fulfill these contracts because of the market collapse in
February 1637.
**This trade was centered in Haarlem during
**the height of a bubonic plague epidemic, which may
have contributed to
**a culture of fatalistic risk-taking.[24]
The contract price of rare bulbs continued to rise
throughout 1636. That November, the contract price of
common bulbs without the valuable mosaic virus also
began to rise in value. The Dutch derogatorily described
tulip contract trading as windhandel (literally "wind
trade"), because no bulbs were actually changing hands.
[25] However in February 1637, tulip bulb contract prices
collapsed abruptly and the trade of tulips ground to a halt.
Available price data
The lack of consistently recorded price data from the
1630s makes the extent of the tulip mania difficult to
estimate. The bulk of available data comes from antispeculative pamphlets by "Gaergoedt and Warmondt"
(GW) written just after the bubble.
Economist Peter Garber collected data on the sales of 161
bulbs of 39 varieties between 1633 and 1637, with 53
being recorded by GW. Ninety-eight sales were recorded
for the last date of the bubble, February 5, 1637, at wildly
varying prices. The sales were made using several market
futures trading at the colleges
, spot sales by growers
, notarized futures sales by growers

, and estate sales.

"To a great extent, the available price data are a blend of
apples and oranges," according to Garber.[27]
Mackay's Madness of Crowds
Goods allegedly exchanged for a single bulb of the
Two lasts of wheat
Four lasts of rye
Four fat oxen
Eight fat swine
Twelve fat sheep
Two hogsheads of wine
Four tuns of beer
Two tons of butter
1,000 lb. of cheese
A complete bed
A suit of clothes
A silver drinking cup
The modern discussion of tulip mania began with the book
Extraordinary Popular Delusions and the Madness of
Crowds, published in 1841 by the Scottish journalist
Charles Mackay;

**he proposed that crowds of people often behave

irrationally, and tulip mania was, along with the South Sea
Bubble and the Mississippi Company scheme, one of his
primary examples.
His account was largely sourced to a 1797 work by Johann
Beckmann titled A History of Inventions, Discoveries, and
Origins. In fact, Beckmann's account, and thus Mackay's by
association, was primarily sourced to three anonymous
pamphlets published in 1637 with an anti-speculative
Mackay's vivid book was popular among generations of
economists and stock market participants. His popular but
flawed description of tulip mania as a speculative bubble
remains prominent, even though since the 1980s
economists have debunked many aspects of his account.
According to Mackay, the growing popularity of tulips in
the early 17th century caught the attention of the entire
"the population, even to its lowest dregs, embarked in the
tulip trade".[6]
By 1635, a sale of 40 bulbs for 100,000
**florins (also known as Dutch guilders) was recorded.
By way of comparison, a ton of butter cost around 100
florins, a skilled laborer might earn 150 florins a year, and
"eight fat swine" cost 240 florins.[6] (According to the
International Institute of Social History, one florin had the
purchasing power of 10.28 in 2002.[30])
By 1636, tulips were traded on the exchanges of numerous
Dutch towns and cities. This encouraged trading in tulips
by all members of society; Mackay recounted people
selling or trading their other possessions in order to

speculate in the tulip market, such as an ofer of 12 acres

(49,000 m2) of land for one of two existing Semper
Augustus bulbs, or a single bulb of the Viceroy that was
purchased for a basket of goods (shown at right) worth
2,500 florins.[28]
Many individuals grew suddenly rich. A golden bait hung
temptingly out before the people, and, one after the other,
they rushed to the tulip marts, like flies around a honeypot.
Every one imagined that the passion for tulips would last
for ever, and that the wealthy from every part of the world
would send to Holland, and pay whatever prices were
asked for them.
The riches of Europe would be concentrated on the shores
of the Zuyder Zee, and poverty banished from the
favoured clime of Holland. Nobles, citizens, farmers,
mechanics, seamen, footmen, maidservants, even
chimney sweeps and old clotheswomen, dabbled in tulips.
Pamphlet from the Dutch tulipomania, printed in 1637
The increasing mania contributed several amusing, but
unlikely, anecdotes that Mackay recounted, such as a
sailor who mistook the valuable tulip bulb of a merchant
for an onion and grabbed it to eat.
The merchant and his family chased the sailor to find him
"eating a breakfast whose cost might have regaled a whole
ship's crew for a twelvemonth". The sailor was jailed for
eating the bulb.[6]
This anecdote is unlikely if only because, like most
Liliaceae bulbs, tulips are somewhat poisonous, and taste
quite diferently from onions.[31]

People were purchasing bulbs at higher and higher prices,

intending to re-sell them for a profit. However, such a
scheme could not last unless someone was ultimately
willing to pay such high prices and take possession of the
In February 1637, tulip traders could no longer find new
buyers willing to pay increasingly inflated prices for their
bulbs. As this realization set in, the demand for tulips
collapsed, and prices plummeted
the speculative bubble burst.
Some were left holding contracts to purchase tulips at
prices now ten times greater than those on the open
market, while others found themselves in possession of
bulbs now worth a fraction of the price they had paid.
Mackay claims the Dutch devolved into distressed
accusations and recriminations against others in the trade.
In Mackay's account, the panicked tulip speculators sought
help from the government of the Netherlands, which
responded by declaring that anyone who had bought
contracts to purchase bulbs in the future could void their
contract by payment of a 10 percent fee.
Attempts were made to resolve the situation to the
satisfaction of all parties, but these were unsuccessful. The
mania finally ended, Mackay says, with individuals stuck
with the bulbs they held at the end of the crash
**no court would enforce payment of a contract, since
**judges regarded the debts as contracted through
gambling, and
**thus not enforceable by law.[6]
According to Mackay, lesser tulip manias also occurred in

other parts of Europe, although matters never reached the

state they had in the Netherlands. He also claimed that the
aftermath of the tulip price deflation led to a widespread
economic chill throughout the Netherlands for many years
Modern views
Anonymous 17th-century watercolor of the Semper
Augustus, famous for being the most expensive tulip sold
during tulip mania.
Mackay's account of inexplicable mania was unchallenged,
and mostly unexamined, until the 1980s.[32] However,
research into tulip mania since then, especially by
proponents of the efficient market hypothesis,[8] who are
more skeptical of speculative bubbles in general, suggests
that his story was incomplete and inaccurate.
**In her 2007 scholarly analysis Tulipmania, Anne Goldgar
states that the phenomenon was limited to "a fairly small
group", and that most accounts from the period "are based
on one or two contemporary pieces of propaganda and a
prodigious amount of plagiarism".[9]
Peter Garber argues that the bubble "was no more than a
meaningless winter drinking game, played by a plagueridden population that made use of the vibrant tulip
While Mackay's account held that a wide array of society
was involved in the tulip trade, Goldgar's study of archived
contracts found that even at its peak
**the trade in tulips was conducted almost exclusively by
merchants and skilled craftsmen who were wealthy, but
not members of the nobility.[34]
**mtg card tulipomania!

Any economic fallout from the bubble was very limited.

Goldgar, who identified many prominent buyers and sellers
in the market, found fewer than half a dozen who
experienced financial troubles in the time period, and even
of these cases it is not clear that tulips were to blame.[35]
This is not altogether surprising.
Although prices had risen, money had not exchanged
hands between buyers and sellers. Thus profits were never
realized for sellers; unless sellers had made other
purchases on credit in expectation of the profits, the
collapse in prices did not cause anyone to lose money.[36]
**tulipomania is an exciting fairytale of money and ruin
and color, for and by poor and bored people!**
Rational explanations
There is no dispute that prices for tulip bulb contracts rose
and then fell in 163637, but even a dramatic rise and fall
in prices does not necessarily mean that an economic or
speculative bubble developed and then burst.
For tulip mania to have qualified as an economic bubble,
the price of tulip bulbs
**would need to have become unhinged from the intrinsic
value of the bulbs.
Modern economists have advanced several possible
reasons for why the rise and fall in prices may not have
constituted a bubble.[37]
The increases of the 1630s corresponded with a lull in the
Thirty Years' War.[38] Hence market prices (at least
initially) were responding rationally to a rise in demand.
However, the fall in prices was faster and more dramatic
than the rise. Data on sales largely disappeared after the
February 1637 collapse in prices, but a few other data

points on bulb prices after tulip mania show that bulbs

continued to lose value for decades thereafter.
Volatility in flower prices
Garber compared the available price data on tulips to
hyacinth prices at the beginning of the 19th century
when the hyacinth replaced the tulip as the fashionable
flowerand found a similar pattern.
When hyacinths were introduced florists strove with one
another to grow beautiful hyacinth flowers, as demand was
strong. However, as people became more accustomed to
hyacinths the prices began to fall.
The most expensive bulbs fell to 12 percent of their peak
value within 30 years.[39]
Garber also notes that, "a small quantity of prototype lily
bulbs recently was sold for 1 million guilders ($480,000 at
1987 exchange rates)", demonstrating that even today
flowers can command extremely high prices.[40]
Additionally, because the rise in prices occurred after bulbs
were planted for the year, growers would not have had an
opportunity to increase production in response to price.
Legal changes
Admirael van der Eijck from the 1637 catalog of P.Cos.,
sold for 1045 florins on February 5, 1637
UCLA economics professor Earl A. Thompson argues in a
2007 paper that Garber's explanation cannot account for
the extremely swift drop in tulip bulb contract prices. The
annualized rate of price decline was 99.999%, instead of
the average 40% for other flowers.[37]

He provides another explanation for Dutch tulip mania.

The Dutch parliament was considering a decree (originally
sponsored by Dutch tulip investors who had lost money
because of a German setback in the Thirty Years' War[42])
that changed the way tulip contracts functioned:
On February 24, 1637, the self-regulating guild of Dutch
florists, in a decision that was later ratified by the Dutch
Parliament, announced that all futures contracts written
after November 30, 1636 and before the re-opening of the
cash market in the early Spring, were to be interpreted as
option contracts. They did this by simply relieving the
futures buyers of the obligation to buy the future tulips,
forcing them merely to compensate the sellers with a
small fixed percentage of the contract price.[43]
Before this parliamentary decree, the purchaser of a tulip
contractknown in modern finance as a futures contract
was legally obliged to buy the bulbs.
The decree changed the nature of these contracts, so that
if the current market price fell, the purchaser could opt to
pay a penalty and forgo receipt of the bulb, rather than
pay the full contracted price.
This change in law meant that, in modern terminology, the
futures contracts had been transformed into options
contracts. This proposal began to be debated in the fall of
1636, and if it became clear to investors that the decree
was likely to be enacted, prices probably would have risen.
This decree allowed someone who purchased a contract to
void the contract with a payment of only 3.5 percent of the
contract price (or about 1/30th the contract).[43] Thus,
investors bought increasingly expensive contracts. A
speculator could sign a contract to purchase a tulip for 100
guilders. If the price rose above 100 guilders, the
speculator would pocket the diference as profit. If the

price remained low, the speculator could void the contract

for only 3 guilders. Thus, a contract nominally for 100
guilders, would actually cost an investor no more than 3
guilders. In early February, as contract prices reached a
peak, Dutch authorities stepped in and halted the trading
of these contracts.[43]
**so, tulipomania was caused by unregulated speculation!
Thompson states that actual sales of tulip bulbs remained
at ordinary levels throughout the period. Thus, Thompson
concludes that the "mania" was a rational response to
changes in contractual obligations.[44] Using data about
the specific payofs present in the futures and option
contracts, Thompson argues that tulip bulb contract prices
hewed closely to what a rational economic model would
"Tulip contract prices before, during, and after the
'tulipmania' appear to provide a remarkable illustration of
'market efficiency'."[45]
Other economists believe that these elements cannot
completely explain the dramatic rise and fall in tulip prices.
[46] Garber's theory has also been challenged for failing to
explain a similar dramatic rise and fall in prices for regular
tulip bulb contracts.[5] Some economists also point to
other factors associated with speculative bubbles, such as
a growth in the supply of money, demonstrated by an
increase in deposits at the Bank of Amsterdam during that
Social mania and legacy
A modern-day field of tulips in the Netherlandstulips
remain a popular symbol of the Netherlands.

The popularity of Mackay's tale has continued to this day,

with new editions of Extraordinary Popular Delusions
appearing regularly, with introductions by writers such as
financier Bernard Baruch (1932), financial writers Andrew
Tobias (1980),[48] psychologist David J. Schneider (1993),
and Michael Lewis (2008). At least six editions are
currently in print.
Goldgar argues that although tulip mania may not have
constituted an economic or speculative bubble, it was
nonetheless traumatic to the Dutch for other reasons.
"Even though the financial crisis afected very few, the
shock of tulipmania was considerable. A whole network of
values was thrown into doubt."[49]
In the 17th century, it was unimaginable to most people
that something as common as a flower could be worth so
much more money than most people earned in a year. The
idea that the prices of flowers that grow only in the
summer could fluctuate so wildly in the winter, threw into
chaos the very understanding of "value".[50]
Tulips painted by Hans Gillisz. Bollongier in 1639
Many of the sources telling of the woes of tulip mania,
such as the anti-speculative pamphlets that were later
reported by Beckmann and Mackay, have been cited as
evidence of the extent of the economic damage. These
pamphlets, however, were not written by victims of a
bubble, but were primarily religiously motivated. The
upheaval was viewed as a perversion of the moral order
proof that
"concentration on the earthly, rather than the heavenly
flower could have dire consequences".[51]
Thus, it is possible that a relatively minor economic event
took on a life of its own as a morality tale.

Nearly a century later, during the crash of the Mississippi

Company and the South Sea Company in about 1720, tulip
mania appeared in satires of these manias.[52]
When Johann Beckmann first described tulip mania in the
1780s, he compared it to the failing lotteries of the time.
In Goldgar's view, even many modern popular works about
financial markets, such as Burton Malkiel's A Random Walk
Down Wall Street (1973) and John Kenneth Galbraith's A
Short History of Financial Euphoria (1990; written soon
after the stock market crash of 1987), used the tulip mania
as a lesson in morality.[54][55][56]
Also in Oliver Stone's drama Wall Street: Money Never
Sleeps from 2010, a sequel to the 1987 film Wall Street,
the tulip mania is referenced. Gordon Gekko, played by
Michael Douglas, uses a historical chart displaying the
market value of tulips and compares it to the Financial
crisis of 20072010.
Tulip mania again became a popular reference during the
dot-com bubble of 19952001.[54] Most recently,
journalists have compared it to the subprime mortgage
crisis.[57][58] Despite the mania's enduring popularity,
Daniel Gross of Slate has said of economists ofering
efficient market explanations for the mania, that
"If they're correct ... then business writers will have to
delete Tulipmania from their handy-pack of bubble
See also
3. Tulip period of the Ottoman Empire.
5. **Orchidelirium the Victorian era of flower madness in
which the collecting of orchids reached extraordinary

7. South Sea Bubble - Another huge speculative bubble.
Greater fool theory
Tulip mania
From Wikipedia, the free encyclopedia
Tulipomania may refer to:
Tulip mania, a period in the Dutch Golden Age fueled by
tulip cultivation
Pussy Riot
From Wikipedia, the free encyclopedia
Pussy Riot
Seven members of the band Pussy Riot
Background information
Moscow, Russia
Punk rock
Years active
Pussy Riot is a Russian feminist punk-rock band based in
Founded in August 2011, the band stages politically
provocative impromptu performances about Russian
political life in unusual locations, such as on top of a

trolleybus or on a scafold in the Moscow Metro.

On February 21, 2012, four members of the group staged a
performance on the soleas of Moscows Cathedral of Christ
the Saviour, motivated by their opposition to the Russian
President Vladimir Putin and the politics of the Russian
Orthodox Church.[1][2]
Their actions were stopped by church security officials.
On March 3, after a video of the performance appeared
online, three of the group members were arrested and
charged with hooliganism.[3]
Their trial began in late July and raised much controversy
in Russia and globally. According to a poll by the Levada
Center, 44% of Russians supported the trial and believed
in its fairness, while 17% did not.[4] At the same time, the
band members gained some noticeable support in Russia
and internationally because of allegations of harsh
treatment while in custody and the risk of a possible
seven-year jail sentence.[5][6]
On August 17, 2012, the three members were convicted of
hooliganism (article 213.2 of the Criminal Code) motivated
by religious hatred and each sentenced to two years
The Russian Orthodox Church issued a statement
appealing to the authorities to show clemency, within the
framework of the law. The Church cast no doubt on the
legitimacy of the courts decision.[9][10]
The trial and conviction have attracted international
criticism.[11] The foreign ministries of Germany and
Sweden, together with representatives of the European
Union and the United States, called the sentence

Performances and influences

A performance at Lobnoye Mesto in Red Square, on
January 20,2012
Interior of the Cathedral of Christ the Saviour
The group's costumes are usually brightly colored dresses
and tights, even in bitterly cold weather, with their faces
masked by balaclavas, both while performing and giving
interviews, for which they always adopt pseudonyms.
The collective comprises around 10 performers and about
15 people who handle the technical work of shooting and
editing their videos, which are posted on the Internet.[13]
The group cites punk rock and Oi! bands Angelic Upstarts,
Cockney Rejects, Sham 69 and The 4-Skins as their main
musical influences.[15][16] The band also cite American
punk rock band Bikini Kill and the Riot grrrl movement of
the 1990s as inspirations.
They have said,
"What we have in common is impudence, politically loaded
lyrics, the importance of feminist discourse and a nonstandard female image."[17]
Pussy Riot formed in August 2011, in part due to mutual
anger over what they perceived as government policies
that discriminate against women. In December 2011, the
group performed atop a garage beside a prison, playing a
song titled
**"Death To Prison, Freedom To Protest".
On 8 February 2012, they played a song in Red Square
mocking Prime Minister Vladimir Putin, leading to some of
their members being arrested and briefly detained.[13]

Church protest
On February 21, 2012, as part of a protest movement
against the re-election of Vladimir Putin, four women from
the group went to the Cathedral of Christ the Saviour of
the Russian Orthodox Church in Moscow, masking their
identities, crossing themselves, bowing to the altar and
beginning to perform the song Mother of God, Put Putin
Away. After less than a minute they were escorted outside
the building by guards.[18][19] Film of the performance
was later used to create a video clip for the song.
The growing ties between the church and the state have
been a target of criticism and protest. The Russian
Patriarch, Kirill I of Moscow had openly supported Putin's
candidacy before the presidential election, calling Putin a
miracle from God who had rectified the crooked path of
After the performance in the cathedral, the members of
Pussy Riot said the church is a weapon in a dirty election
campaign and called Putin a man who is as far as can be
from Gods truth.
Pussy Riot said their protest was a political statement, but
prosecutors said the band was trying to incite religious
hatred against the Orthodox Church.[20]
Arrest and prosecution
On March 3, 2012,
**Maria Alyokhina and
**Nadezhda Tolokonnikova
, two alleged members of Pussy Riot, were arrested by the
Russian authorities and accused of hooliganism. Both
women at first denied being members of the group and
started a hunger strike in protest against being held in jail
away from their young children until their case came to

trial in April.[21]
On March 16 another woman, Yekaterina Samutsevitch,
who had earlier been questioned as a witness in the case,
was similarly arrested and charged.[22]
On June 4, the group was formally charged, the indictment
running to 2,800 pages.[23]
On July 4, they were suddenly informed that they would
have to finish preparing their defense by July 9. They
announced a hunger strike in response, saying that two
working days was inadequate time to prepare a trial
On July 21, the court extended their pre-trial detention by
a further six months.[25]
Nadezhda Tolokonnikova
Yekaterina Samutsevich
Maria Alekhina
The three Pussy Riot members at their trial in Tagansky
District Court
The three detained members of Pussy Riot are recognized
as political prisoners by the Union of Solidarity with
Political Prisoners (SPP).[26] Amnesty International named
them prisoners of conscience due to "the severity of the
response of the Russian authorities".[27]
Speaking at a liturgy in Moscow's Deposition of the Robe
Church on March 21, the Patriarch of Moscow and All
Russia, Kirill I, condemned Pussy Riot's actions as
"blasphemous", saying that the "Devil has laughed at all of
us ... We have no future if we allow mockery in front of
great shrines, and if some see such mockery as a sort of

bravery, an expression of political protest, an acceptable

action or a harmless joke."[28]
Singer Alla Pugachyova appealed on the women's behalf,
stating that they should be ordered to perform community
service rather than be imprisoned.[29]
According to BBC correspondent Daniel Sandford,
"Their treatment has caused deep disquiet among many
Russians, who feel the women are to coin a phrase from
the 1967 trial of members of the rock band The Rolling
**butterflies being broken on a wheel."[30]
By late June 2012, growing disquiet over the trio's
detention without setting a trial date and concern over
what was regarded as excessive and arbitrary treatment,
led to the drawing up of an open letter.
It was signed by leading oppositional figures as well as
director Fyodor Bondarchuk, a supporter of Putin, and
actors Chulpan Khamatova and Yevgeny Mironov, both of
whom had appeared in campaign videos supporting Putin's
Nikita Mikhalkov, head of the Russian Cinematographers'
Union, stated in an interview that he would gladly sign an
open letter "against" them.[32]
In July 2012, sociologist Alek D. Epstein published a
compilation of artistic works by various Russian artists
entitled "Art on the barricades: Pussy Riot, the Bus Exhibit
and the protest art-activism" in support of the trio.[33]
The trial of the three women started in Moscow's
Khamovniki, or Khamovnichesky, District Court on July 30.
[34] Charged with "premeditated hooliganism performed
by an organized group of people motivated by religious
hatred or hostility", they faced possible sentences of up to

seven years imprisonment.[35]

In early July, a poll conducted in Moscow found that half of
the respondents opposed the trial while 36 percent
supported it; the rest being undecided.[36] The defendants
pleaded not guilty, insisting that they had not meant their
protest to be ofensive.[35]
On July 31, The Financial Times published an editorial
saying the women had become
**"an international cause clbre"
due to the harsh treatment they have received.[37]
On August 15, a group of protestors gathered in support of
Pussy Riot outside the Christ the Saviour Cathedral and
held up placards to make the phrase Blessed are the
merciful. They were quickly set upon by cathedral guards.
Pussy Riot's lawyers said that the circumstances of the
case have revived the Soviet-era tradition of the show trial.
9. Maria Vladimirovna Alyokhina (rus.
), born June 6, 1988 (age 24),
[40] a fourth year student at the Institute of Journalism
and Creative Writing in Moscow, has a history as a
humanitarian volunteer and environmental activist
with Greenpeace Russia. She has one young child. She
played an active role in the trial: cross-examining
witnesses and aggressively questioning the nature of
the charges and proceedings.[41]
11. Yekaterina Stanislavovna Samutsevich (rus.
), born August
9, 1982 (age 30),[40] is a computer programmer
interested in LGBT issues. She is a graduate of the

Rodchenko School of Photography and Multimedia in

Moscow. Court sessions were attended by her
grandfather Stanislav Samutsevich.[42]

Nadezhda Andreyevna Tolokonnikova (rus.

), born November 7, 1989
(age 22),[43][40] is a philosophy student at Moscow
State University with a history of political activism with
the street-art group Voina. She is married to Pyotr
Verzilov and has a four-year-old daughter.[44] She has
Canadian permanent resident status and her husband
is a dual citizen of Canada and Russia. There is
speculation in Canada over whether the authorities
there should get involved in the case.[43][45]

Public opinion in Russia

A series of Levada Center polls showed that 44% of
Russians believed that the trial was "fair and impartial"
while 17% believed it was not.
36% believed that the verdict would be based on the
evidence and 18% believed that the verdict would be
influenced by the state.[4] 6% sympathised with Pussy
Riot, while 41% felt antipathy towards them.
However, 58% of respondents expected the defendants to
receive a disproportionate punishment.[46][47] The
conservatism of the public has been criticized by many
Russian commentators.[4]
The director of the Levada Center, Lev Gudkov,
commented on these results, stating that
**most Russians get their information from television, and
**therefore perceive the event in accordance with the
state's "official version".[4]
International support
Protests in Moscow in June 2012

The accused have received support from various

international artists, politicians, musicians and
personalities such as (alphabetical by name):
10. Bryan Adams[48]
11. The Beastie Boys[49]
12. Bjrk[50]
13. John Cale[51]
14. Jarvis Cocker[52]
15. Corinne Bailey Rae[52]
16. Cornershop[52]
17. Die Antwoord[49]
18. Faith No More[53]
19. Stephen Fry[54]
20. Peter Gabriel[55]
21. Genesis[56]
22. Jn Gnarr, the Mayor of Reykjavk[57]
23. Nina Hagen[58]
24. Kathleen Hanna[59]
25. Peter Hammill[60]
26. Zola Jesus[49]
27. The Joy Formidable[52]
28. Alex Kapranos of Franz Ferdinand[52]
29. Warren Kinsella[61]
30. Mark Knopfler[62]
31. Geddy Lee[63]
32. Courtney Love[64]
33. Madonna[65]
34. Johnny Marr[52]
35. Ana Matronic[66]
36. Paul McCartney[49]
37. Kate Nash[52]
38. Yoko Ono[55]
39. Peaches[53]
40. Iiro Rantala[56]
41. Red Hot Chili Peppers[67]
42. Rise Against[56]
43. Patti Smith[68]


The Squids[69]
Neil Tennant of the Pet Shop Boys[52]
Pete Townshend[52]

A letter of support from 120 members of the German

parliament, the Bundestag, was sent to the Russian
Ambassador to Germany, Vladimir Grinin. The letter
referred to proceedings against the women as being
disproportionate and draconian.[70]
On August 9, 2012, 400 Pussy Riot supporters in Berlin
marched wearing colored balaclavas in a show of support
for the group.[71]
Conviction and sentencing
All three were convicted and sentenced to two years
imprisonment on August 17, 2012. The judge stated that
they had crudely undermined the social order with their
protest, showing a complete lack of respect for believers.
[72] Tolokonnikova later replied that
Our imprisonment serves as a clear and unambiguous
sign that freedom is being taken away from the entire
Supporters and critics of the band both demonstrated at
their sentencing hearing.[72] Opposition leader Sergei
Udaltsov, who was protesting in support of the band, was
detained by police,[73] while former world chess champion
**Garry Kasparov, trying to attend the reading of the
verdict, was arrested and beaten.[74][75][76]
Defense lawyers said they would appeal the verdict,
although they saw little prospect of it being overturned.
Under no circumstances will the girls ask for a pardon
[from Putin],

said Mark Feygin.

They will not beg and humiliate themselves before such a
The Russian Orthodox Church stated that while the actions
of Pussy Riot were ofensive to millions of people, the
church called
on the state authorities to show mercy to the people
convicted within the framework of the law, in the hope that
they will refrain from repeating blasphemous actions.[78]
Even some Kremlin loyalists strongly criticized the verdict.
Former Finance Minister Alexei Kudrin said it has dealt
yet another blow to the court system and citizens trust in
The countrys image and its attractiveness in the eyes of
investors have sufered an enormous damage, he said.
International reaction
Amnesty International called the conviction "a bitter blow
for freedom of expression".[77]
Hugh Williamson, of Human Rights Watch, stated that the
"charges and verdict... distort both the facts and the law...
These women should never have been charged with a hate
crime and should be released immediately."[80]
Canada's Foreign Afairs Minister John Baird's press
secretary, Rick Ross, said Canada "believes strongly in the
rule of law, administered independently and without
political bias or motivation... the promotion of Canadian
values, including freedom, democracy, human rights, and
the rule of law, features prominently in our ongoing
dialogue with the Russian authorities."[77]
The United States embassy in Moscow tweeted that the
sentence "looks disproportionate to the actions," and the

United States State Department asked Russia to "review

this case and ensure that the right to freedom of
expression is upheld."[81]
Barack Obama expressed disappointment, and the White
House stated "we have serious concerns about the way
that these young women have been treated by the Russian
judicial system."[79]
Lyudmila Alexeyeva stated that the judgement was
politically motivated and that the Russian court was "not in
line with the law, common sense or mercy".[82]
A protest organizer, Alexei Navalny, described the verdict
as being "written by Vladimir Putin" and called it Putin's
Author Boris Akunin attended the protests on the day of
the conviction and stated that "Putin has doomed himself
to another year and a half of international shame and
Alexei Kudrin stated that the trial caused "huge damage"
to Russia's image and its "attractiveness to investors."[83]
Irina Yarovaya, a member of the General Council of Putin's
United Russia party, defended the conviction, stating "they
deserved it."[84]
Protests were held around the world after the sentence
was announced.
Amnesty International declared August 17 "Pussy Riot
Global Day" by activists.[85]
People gathered in New York City where Chloe Sevigny
read writings and court statements by the convicted

members of the band. In Kiev, Inna Shevchenko, a topless

feminist activist from the group FEMEN, used a chainsaw
to destroy a wooden sculpture of Christ on the cross, which
was erected on a hill overlooking the city center.
Some sources claimed that it was the cross erected to
commemorate victims of Stalinist repression and the
famine of the 1930s,[86][77] however that the cross is
made of stone not wood, and the wooden cross which was
destroyed is likely to have been the cross dedicated to the
events of the Orange Revolution of 20042005.[87]
In Bulgaria people put masks, similar to those worn by
Pussy Riot, on a Soviet sculpture.[82] Approximately 100
people protested outside the Russian consulate in Toronto.
In Serbia, the right-wing activist group Nasi released a
video game online focusing on the members of Pussy Riot
and supporting the women's imprisonment.[89]
In Edinburgh, Scotland, Fringe performers read a trial
testimony of the Pussy Riot women.[90]
The connection between Pussy Riot and the group Voina
has been highlighted by some of the group's critics and
has been called an "aggravating moral circumstance" in
the eyes of the conservative public (which constitutes
about 60 per cent of Russians).[4]
Pussy Riot members Nadezhda Tolokonnikova and
Yekaterina Samutsevich participated in some Voina
Tolokonnikova was part of a performance in which a
number of couples were filmed having sex in the Biology

Museum in Moscow in 2008[4] which has been called an

"orgy" in the media.[91]
Samutsevich took part in actions which involved releasing
live cockroaches in a court room and kissing policewomen
in the Moscow metro and on the streets (which in some
cases was seen as attempted assault).[4][92]
Pussy Riot wiki
Using and Resisting Influence
In a Nutshell
**You can't manage others if you can't or won't influence
them, and they must be influenced properly.
Influencing others is a fundamental managerial activity.
Being efective at influencing others usually doesn't mean
using your leverage to push them around ... but
sometimes it does. The best managers actually use a
range of influence tactics. When possible, they reason
with their staf, peers, superiors, etc. to get the
cooperation needed.
However, in some circumstances, ofering something in
exchange for cooperation works best. Sometimes
managers simply have to use pressure to get what they
need, even though it can strain relationships.
Efective managers are also able to resist inappropriate
influence attempts from others.
Testimony this month in a Disney shareholders' lawsuit
shows the conniving influence tactics Disney CEO Michael
Eisner (in the photo above) used to set the stage for the
1996 termination of President Michael Ovitz.
Rather than working directly with Ovitz to influence his

performance, Eisner sent memos and had private

conversations with board members to build a coalition that
was dissatisfied with Ovitz and willing to terminate him.
Eisner appears to have been too focused on gaining
leverage and not focused enough on constructively
managing Ovitz.1
In This Issue
Interpersonal Influence Strategies
Practicing This Management Skill
About the Newsletter and Subscriptions
Good, Clean Joke
LeaderLetter Web Site
Interpersonal Influence Strategies
You can't be an efective manager if you don't influence
others. The definition of a manager in many textbooks is
**"someone who gets things done through and with
That's clearly an oversimplification, but it demonstrates
how essential influencing others is to getting managerial
work accomplished.
Having said that, I should also point out that influencing
isn't synonymous with efective management. As I
mentioned in the last LeaderLetter, building power bases
shouldn't be a manager's primary focus, but managers
have to have at least some form of power to be able to do
their jobs.
The same principle applies to influence (which is the
exercise of power); influencing others doesn't prove that a
manager is efective, but failure to influence others is often
the cause of managerial inefectiveness.
Choosing the right influence strategy is also a key to

managing efectively. Reasoning with someone to get

them to comply with your wishes has a lot of advantages
as an influence strategy, but there are also circumstances
in which it's more appropriate to use some form of
exchange or pressure to get cooperation.
When feasible, the best way to influence others is reason.
Managers who primarily use reason to influence others
garner more respect and support in their organizations.
Using reason to influence others simply means explaining
to them why it's important or helpful for them to do what
they're being asked to do and relying on their sense of
responsibility and conscientiousness to comply.
It's feasible to use reason when your relationship with the
other party is one of mutual trust and respect, and there's
sufficient time to explain your request. Reason also
requires some degree of common values and priorities
between the parties. If you request that someone do
something because it would "save the company money,"
"make the client happy," or "reduce employee turnover,"
that person will only be motivated to comply with your
request to the extent that they care about those
Exchange influence strategies include all the ways we get
people to do things by engaging in some sort of trade.
Putting an incentive on a certain goal and ofering a bonus
for a particular assignment are examples of exchange
strategies. Ingratiation is a more subtle and potentially
manipulative way to use an exchange to influence others.
Ingratiation is giving gifts or performing favors to foster a
sense of indebtedness in another party. Later, when you
want that party to do something for you, that sense of

indebtedness can either consciously or unconsciously

influence their decision. The advantage of exchange over
reason is that you don't have to justify your request--as
long as the other party wants what you have to ofer
they'll comply.
Exchange works even when the party you're trying to
influence doesn't have the same values and priorities that
you do. Exchange strategies answer the "What's in it for
me?" question.
**Of course, the problem is that you have to give
something to the other party, such as some form of reward
or incentive.
**Furthermore, once you start using incentives to get
compliance, people will expect you to ofer them
inducements when you try to influence them in the future.
A drawback specific to the ingratiation strategy is that it
can actually cause the opposite of the intended efect if
the plan becomes obvious, because people resent being
Pressure influence strategies involve coercion or
intimidation. **People comply with these strategies to
avoid the negative consequences of not doing so.
Sometimes those negative consequences are clearly
stated (i.e., coercion), other times they're implied (i.e.,
Some examples of the range of negative consequences
that you could use include
quitting and leaving someone (e.g., your boss) in a bind,
firing someone,
docking their pay,
requiring overtime, or

embarrassing them publicly.

The advantage of pressure is that it can be get quick
compliance, but that's about all I can say in defense of
**Pressure tends to create insecurity, resentment, and
It should be used as a last resort.
**In summary,
exchange, and
are used to influence others in organizations. Whenever
we can use the reason strategy to influence others, we
probably should. Exchange can also be efective, and it's
particularly useful when parties have diferent values and
priorities. Pressure can be efective too, but it should be
practiced with the utmost care.
Practicing This Management Skill
15. Reason
17. Using Reason.
19. Again, reason is the best form of influence for most
situations. When presenting the reasons why we want
someone to comply with our request or accept our
suggestion, we should consider how our request or
suggestion pertains to the personal values of the
person we're trying to influence.
21. **In the ideal situation, the person we're trying to
influence has internalized the organization's values.
22. If so, anything we ask them to do that's consistent
with the organization's values will be something they

personally want to do.



Resisting Reason.
Present alternative reasoning.
When someone is trying to use reason to get us to do
something, we should respond in one of two ways:
(1) cooperate because the reasoning is sound, or
(2) tactfully explain why we do not think it would be
wise for us to cooperate. In other words, reason can
be resisted with counter-reasoning.
**We may need to call attention to the bigger picture
or the flaw in the logic.
Defend your rights.
Some people become slaves to their desire to be
helpful to others. Being cooperative and a "team
player" is great, but each of us should remember that
we have rights. We shouldn't sacrifice our priorities in
order to help others. We have a right not to help
coworkers who are becoming overly dependent on our
help. We have a right to use our free time to pursue
innovative projects. We have a right to work a
reasonable number of hours. Sometimes we have to
assertively stand up for our rights.
**In pop-psych terms, "people pleasers" need to
develop "boundaries."
Firmly refuse.
Sometimes people are a little overzealous in their
eforts to use reason to influence us. They have ideas
to "sell" to us. And, like
**all good salespeople, those zealots don't give up
when we voice our objections---they try to answer


As long as we continue to present counter-reasoning,

the debate will continue. Even in relationships that we
would like to keep harmonious,
**sometimes we need to firmly refuse a request and
firmly refuse to discuss it further.

Using Exchange.
Offer favors or incentives.
To overtly influence others with exchange, we must clearly
explain exactly what we have to ofer and what we want to
receive in return.
**Any ambiguity in the ofer or request could cause the
other party to feel cheated later.
**It can also help to emphasize that "it's a one time ofer"
so that the party we're trying to influence won't always
expect us to dangle a carrot in front of them when we want
their help.
To influence others using ingratiation, be subtle. Overt
attempts at ingratiating yourself with others often backfire
because people resent being manipulated. You can
ingratiate yourself with others by spontaneously doing
favors for them or giving them gifts. Even friendship and
compliments can be ofered for the purpose of
ingratiation. Colloquial terms for this are "brown nosing"
and "sucking up."
Resisting Exchange.

Scrutinize gifts and favors. We should consider the

motives of people who give us gifts and do favors for us.
I'm not suggesting that gifts and favors are always
manipulative, but we should decline gifts from people who
may be using them to bias our decision making.
Reject manipulative bargaining tactics.
When we notice a party who we're bargaining with is using
manipulative tactics such as rushing us into an agreement
or trying to change terms we've already agreed upon, we
should call attention to the manipulation, explain why we
don't want to bargain that way, and suggest a diferent
approach to bargaining.
Stop bargaining.
If we don't approve of someone's bargaining style, we can
refuse to bargain with him or her.
**Unless we're willing to walk away from negotiations, the
other party has leverage over us.
Using Pressure.
To use pressure efectively, we must use it sparingly.
Furthermore, we must stay within organizational policies
and the bounds of what's reasonable. For instance, it's
absolutely reasonable to threaten to terminate a staf
member who repeatedly violates safety standards, but
unreasonable to threaten to terminate someone the first
time he or she misses a meeting.
**Finally, we have to follow through with the consequences
if we don't gain compliance. If we don't deliver the
consequences, we'll have less credibility when using
coercion in the future.

Resisting Pressure.
Build your power base.
In the famous words of British historian, Lord Acton, "Power
corrupts. Absolute power corrupts absolutely." Perhaps he
exaggerated, but most of us have been in situations where
people who've had a lot of power over us have treated us
in insensitive and selfish ways. By building our own power
base, we reduce the chances of a powerful person
pressuring us.
See the LeaderLetter on Building Your Power Base.
Defend your rights.
Each of us has a right not to be exploited.
**When someone is intimidating or coercing us, we should
confront him or her,
**clearly explain what they're doing that we perceive to be
intimidating or coercive, and
**state that no one should be treated that way.
Actively resist.
The only way to deal with some people is by fighting back.
By reporting the problem to senior managers or external
parties, we may be able to get some relief from coercion or
intimidation. You may also get some ideas from this web
site on "workplace bullying":
Let's keep the conversation going.
A Good, Clean Joke
Interview with a turkey.
"You're scheduled to be executed in an hour. What's your

story, how did you get here? Help me and my readers

understand what's in your mind right now. One short hour.
Why, you'll baste longer than that afterwards."
"Thanks for reminding me." He lights a cigarette, gripping
his Bic with a taloned foot. "What's my story? I'll tell you
my story, pal, I was born a turkey. You have no idea what
it's like being a turkey in America."
"Tell us, we care, help us understand."
"Look, we're not pretty birds, we don't fly, what do you
want from us? We got these gnarly red sacs hanging from
our beaks. You know what our language is? Gobble,
gobble. That's it. Every word in the turkey language
consists of some form of gobble-gobble: gob, obble, ob,
ob-ob, obble-gobble--that's the way we talk. We're a threat
to no one. Yet, every Thanksgiving without fail, we are
rounded up by the millions and
cannibalized////////////devoured, steve says//////////. And
Thanksgiving isn't even our holiday." He goes into a violent
coughing fit, choking on the cigarette, his dewlap
quivering. I wait patiently. Finally, he sips from a glass of
water, regaining his composure.
"Are you alright?"
"Yeah, yeah, peachy freakin' keen. Do you realize that in a
few short hours somebody's gonna make gravy out of my
giblets? Now, that's just sick." He scowls at his cigarette,
snubs it out in a cluttered ashtray. "Geez, nasty habit,
smoking. Gonna kill me one of these days." A brief,
humorless smile.
"So you feel that the Thanksgiving tradition is cruel and
"You tell me. Is genocide by mastication "cruel"? You want
"unusual"? Try this: When there is nothing left but bones,

fatty deposits, and gristle, I will be made into soup. Turkey

skeleton soup. Who in their right mind would eat turkey
skeleton soup? What's wrong with fish? Isn't that the other
white meat? Big fat catfish goes good with cranberries. I
thought you people were obsessed with your red meat.
Why can't Thanksgiving be a steak day? Or deer meat,
chicken, possum, dog, or a cat. I don't care, but in the
name of all that's holy, please leave us turkeys in peace."
"What do you think of turkey bowling?"
"I think turkey bowling stinks. Next question."
"Would you support a Constitutional amendment that
would make the killing of a turkey with the intention of
eating it, a Hate Crime?"
"Well, the problem, you see, is that I am a turkey, and last
time I looked turkeys hadn't been given the vote. But even
if we were U.S. citizens, we'd still just be a bunch of
turkeys, and what's that going to do?"
"Do they give you a final meal in here?"
"Yeah. Pellets. Same thing they give us every meal.
Tasteless brown pellets that we eat of the ground. I don't
even know what it is."
"It might encourage you to know that there is a candlelight
vigil being held outside right now in support of your right
to life."
"Oh, how sweet. Supper tonight, they'll be fighting over
who gets the leg."
"That's kind of cynical, don't you think?"
"I meant it in a good way."

"Do you have any final thoughts you'd like to share with
"Maybe just that I'll be dead soon and the flesh gnawed
from my bones."
"Well, I was thinking of something more upbeat. Can you
tell us, for example, what you're most thankful for this
holiday season?"
"Well, I've got my health. I'm thankful for that."
"Would you do something for me? Would you wish my
readers Happy Thanksgiving in Turkey language?"
"Sure. Gobble gobble."
Using and Resisting Influence
From Wikipedia, the free encyclopedia
Ingratiation, a term coined by social psychologist Edward
E. Jones, is
**a social psychological technique in which
**an individual attempts to become more attractive or
likeable to their target.[1]
This outcome can be achieved by using several methods
such as
opinion conformity, and
self presentation/self-promotion.
Other enhancement is a method in which the ingratiator
compliments the target individual.
Opinion conformity occurs when the ingratiator adopts and
validates the attitudes and beliefs of the target individual.

Self-presentation/self-promotion is a technique in which

the ingratiator emphasizes their own attributes in order to
be seen positively in the eyes of the target individual.
Recently, researchers have added onto this list of
ingratiation methods, and now recognize
instrumental dependency,
name dropping and
situation-specific behaviors
as forms of ingratiation as well.
Major theoretical approaches
Edward E. Jones: the father of ingratiation
Ingratiation, as a topic in social psychology, was first
defined and analyzed by social psychologist Edward E.
In addition to his pioneering studies on ingratiation, Jones
also helped develop some of the fundamental theories of
social psychology such as the
**Fundamental Attribution Error and the
**Actor-Observer Bias.
Jones first extensive studies of ingratiation were published
in his book Ingratiation: A Social Psychological Analysis. In
citing his reasons for studying ingratiation, Jones reasoned
that ingratiation was an important phenomenon to study
because it elucidated some of the central mysteries of
social interaction and was also the
**stepping stone towards understanding other common
social phenomena
**such as group cohesiveness.

Historical definition and classes

Based on the
**social theory of groups proposed by John Thibaut and
Harold Kelley in 1959,
Jones defined ingratiation as
**a class of strategic behaviors illicitly designed to
influence a particular other person concerning the
attractiveness of ones personal qualities.[1]
From this, Jones divided ingratiation into three major
other enhancement,
conformity and
Other enhancement is said to
**involve communication of directly enhancing,
evaluative statements [1] and is
**most correlated to the practice of flattery.
Most often, other enhancement is achieved when the
ingratiator **exaggerates the positive qualities of the
**while leaving out the negative qualities.
According to Jones, this form of ingratiation is efective
**based on the Gestaltian axiom
**that it is hard for a person to dislike someone that thinks
highly of them.
In addition to this, other enhancement seems to be most
efective when compliments are directed at the targets
sources of self-doubt.
**To shield the obviousness of the flattery,
**the ingratiator may first talk negatively about qualities
the target knows are weaknesses and
**then compliment him/her on a weak quality the target is

unsure of.
Conformity is
**based on the tenant that
**people like those whose values and beliefs are similar to
their own.
According to Jones, ingratiation in the form of conformity
range from simple agreement with expressed opinions to
the most complex forms of behavior imitation and
identification. [1]
Similar to other enhancement,
**conformity is thought to be most efective when there is
a change of opinion.
**When the ingratiator switches from a divergent opinion
to an agreeing one,
**the target assumes the ingratiator values his/her opinion
enough to change,
**in turn strengthening the positive feelings the target has
for the ingratiator.
With this, the target person is likely to be most
appreciative of agreement when he wants to believe that
something is true but is not sure that it is. Jones argues,
therefore, that
**it is be best to start by disagreeing in trivial issue and
**agreeing on issues that the target person needs
Self-presentation is the
explicit presentation or description of ones own
attributes to increase the likelihood of being judged
**steve says, 'performing status'
The ingratiator is one who models himself along the lines

of the target persons suggested ideals. Self-presentation

is said to be most efective by
**exaggerating strengths and minimizing weaknesses.
This tactic, however, seems to be
**dependent of the normal self-image of the ingratiator.
For example, those who are of high esteem are considered
with more favor if they are modest and those who are not
are seen as more favorable when they exaggerate their
strengths. One can also present weakness in order to
impress the target. By revealing weaknesses, one implies a
sense of respect and trust of the target.
Interview responses such as
**I am the kind of person who,
You can count on me to...
are examples of self-presentation techniques.
Modern types
Since Jones work of the 1960s, researchers have added
four more types of ingratiation.
The first of these four types has been labeled as
**self-deprecation, which serves the opposite purpose of
Instead of the ingratiator making themselves seem more
attractive in the eyes of the target individual, the goal of
self-deprecation is to decrease the perceived
attractiveness of the ingratiator.
**By doing so, the ingratiator hopes to receive pity from
their target.
**Instrumental dependency
similarly aims to make oneself appear inferior to the target
individual, and it
**achieves this by making the target individual think that
the ingratiator is entirely dependent on them.
**Name dropping

is an ingratiation tactic that is commonly used, and it

**when the ingratiator uses the name of, or makes
reference to, a well-known and well-respected third party.
**situation-specific behaviors
**the ingratiator finding out personal information about
the target individual, and then using this information to
gain their approval.
In regards to the goals of the ingratiator, Jones [1] also
defines three separate types of ingratiation:

**Acquisitive ingratiation
occurs if the target person controls scarce or valuable
resources that the ingratiator hopes to acquire at a
minimum personal cost.
**Protective Ingratiation
is used in order to cultivate favor with the target in
order to proactively prevent or blunt a potential attack.
**Significance ingratiation
occurs when the ingratiator merely seeks the respect
and approval of the target and is not seeking an
explicit reward.

Major empirical findings

In business
Seiter[3] conducted a study that looked into the efect of
ingratiation tactics on tipping behavior in the restaurant
business. The study was done at two restaurants in
Northern Utah, and the participant pool was 94 dining

parties of 2 people each, equaling 188 participants in total.

In order to ensure that the person paying the bill was
complimented, the experimenters were told to compliment
both members of the party without making their
compliments seem insincere. The data was collected by
two female communication students, both the age of 22,
who worked part-time as waitresses.
The results of the experiment supported the initial
hypothesis that customers receiving compliments on their
choice of dish would tip larger amounts than customers
who received no compliment after ordering.
A one-way ANOVA test was performed, and this test found
significant diferences in tipping behavior between the two
Customers who received compliments left larger tips (M =
18.94) than those who were not the recipients of
ingratiation tactics (M = 16.41).
In conversation and interviews
Godfrey conducted a study that looked into the
**diference between
**self-promoters and
The study subjects consisted of 50 pairs of unacquainted,
same sex students from Princeton University (25 male
pairs, 25 female pairs). The pairs of students participated
in two sessions of videotaped, 20-minute conversations,
spaced one week apart.
The first session was an unstructured conversation where
the two subjects just talked about arbitrary topics. After
the first conversation, one subject was randomly assigned
to be the presenter.

The presenter was asked to fill out a two-question survey

that rated the likability and the competency of the other
subject on a scale from 1 to 10. The second subject was
assigned the role of the target, and was instructed to fill
out a much longer survey about the other subject, which
included the likability and competency scale, 41 trait
attributes, and 7 emotions. In the second session, the
presenters were asked to participate as an ingratiator or a
They were both given specific directions:
**ingratiators were told to try and make the target like
them, while the
**self-promoters were instructed to make the targets view
them as extremely competent.
The results show that the presenters only partly achieved
their goal.
Partners of ingratiators rated them as somewhat more
likable after the second conversation than after the first
conversation (Ms = 7.35 vs. 6.55) but no more competent
(Ms = 5.80 vs. 5.85), whereas partners of self-promoters
rated them as no more competent after the second
conversation than after the first conversation (Ms = 5.25
vs. 5.05) but somewhat less likable (Ms = 5.15 vs. 5.85).
Ingratiators gained in likability without sacrificing
perceived competence, whereas self-promoters sacrificed
likability with no gain in competency.
Ingratiation can be applied to many real world situations.
As mentioned previously, research has delved into the
areas of tipping in the restaurant business and
conversations. More research shows how ingratiation is
applicable in the online dating community and job

In a study of social rejection in the online dating

community, researchers tested whether ingratiation or
hostility would be the first reaction of the rejected
individual and whether men or women would be most
likely to ingratiate in diferent situations.[5]
The study showed that cases in which the woman had felt
close to a potential dating partner from the mutual
sharing of information and was rejected, she was more
likely than men to engage in ingratiation.
Furthermore, men were shown to be more likely to be
willing to pay for a date (as prompted by the researchers,
not for the date itself) with a woman who had previously
harshly rejected him over a woman who had mildly
rejected him.
**Both cases show that while men and women have
diferent social and emotional investments, they are
equally likely to ingratiate in a situation which is selfdefining to them.
In another study in the context of an interview, research
showed that
**a combination of ingratiation and self-promotion tactics
was more efective than using either one by itself or
neither when trying to get hired by a potential employer.
The most positive reviews and recommendations came
from interviewers whose interviewees had used such a
combination, and they were also most likely to be given a
job ofer.
However, when compared by themselves, self-promotion
was more efective in producing such an outcome than
ingratiation; this may be due to how the nature of an
interview requires the individual being considered for the

job to talk about their positive qualities and what they

would add to the company.
There is some disagreement in the literature as to whether
self-presentation is a type of ingratiation or another tactic
in itself. But there is no concrete evidence or reasoning
supporting the idea that the self-presentation is not a form
of ingratiatons. Therefore, the major consensus is that the
two are mutually exclusive.
Studies have shown that ingratiation, defined as the
attempt of an individual to become more likeable to their
target, is a highly efective form of impression
management, and one that occurs frequently in social
interactions.[7] As a result, it has become a useful tactic in
many real-world situations when one is looking to improve
their appearance towards another. Examples of situations
in which ingratiation is often used include businesses,
court-rooms, dating, and other areas in which a person
looks to improve their image towards a target individual.
In a world in which social standing is an important aspect
of personal identity, ingratiation as a form of impression
management has become a tactic that is used increasingly
While it still remains a relatively under-researched topic in
social psychology, its importance in day-to-day life is
becoming further recognized by researchers, as
demonstrated by the recent addition of four new
subcategories.[2] These four subcategories, along with the
three primary types of ingratiation coined by forefather of
the subject Edward E. Jones, have established a solid base
for a topic that is likely to see further expansion in the

See also
% Charm ofensive
% Love bombing
% Psychological manipulation
% Superficial charm
Jones, E.E., Ingratiation: A Social-Psychological Analysis,
1965, Chapter 2.
This chapter is on the various types of ways people
attempt to ingratiate themselves to others. The three
major tactics for ingration are
opinion conformity, and
(with giving gifts and rendering favors a possible fourth).
Complimentary Other-Enhancement
Basically it means flattery. The person focuses and often
exaggerates the positive side, and ignores the negative
side, with the goal to communicate the idea that the
ingratiator thinks highly of the other person.
This tactic succeeds often because people find it difficult
not to like people who think highly of them.
To succeed (even despite internal dislike of the other
person), the ingratiator must give his compliments
**One way is to make sure the reason for the ingratiation
isn't apparent,
**or the future "favor" needed isn't obvious or relevant at
the time of the compliments.
Another tactic is to

**tell a third person flattering remarks and have them "get

back" to the target person.
**Credibility is established in this process.
One must also
**make sure the compliments are plausible, yet still more
lavish than the target person thinks they deserve.
**It's best to target a person's perceived weaknesses for
**It's the person's doubts about themselves that open
them up for flattery.
Another efect, the "posivity efect" states that people tend
to like people who seem to approve of them than those
who disapprove of them.
One can also complicate the flattery to make it more
**In a two-sided message strategy,
**one could mix negative comments (that the target is
fully aware of)
**with flattery at attributes the target is uncertain of.
Also comments that put him relatively higher than others
on some criteria may be more gratifying.
Flattery and ingratiation tend to operate in a hinterland of
Another tactic is to start with more negative comments to
create an "approval deprivation", then to follow up with
more positive comments (risky but potentially efective).
**The "friendly insult" is commonly used by men to
suggest admiration.
**The insult suggests to the target that they have the
attention of the person and that they have the strength
and good nature to survive the attack.

Conformity in Opinion, Judgement, and Behavior

A second tactic is conforming to the various ways of the
target person. The belief is that people like those with
apparently similar values. It can range from simple
agreement to mimicry. Unlike verbal flattery, mimicry and
other complex forms of conformity may be more difficult to
develop and sustain, especially when they don't actually
conform to your real opinions or behaviors.
**Another tactic to ingratiation is to allow the target to
"convice" you of their opinion. Various studies show that
either consistent conformity or conformity preceded by
sufficient resistance are both good strategies at
However, it's important not to merely change your opinion
each time you hear the target's opinion -- try to state your
opinion (which you believe is also theirs) before the target
states theirs -- it will seem more sincere.
**Another efective method is to disagree on irrelevant
topics to establish some personal independence from the
target, and then appear to agree or switch to agreement
on relevant topics.
A third tactic is to present one's own attributes in a
manner that the target would approve and like. The
successful ingratiator models themself on the targets
The ingratiator can either focus on their strengths and
virtues, or present themselves in such a way as to increase
the strengths and virtues of the target person.
**For either tactic, credibility remains important.
**Actions such as humility and modesty can also work.
**Asking for advice or assistance can also be gratifying to

the target.
**One can also reveal sensitive personal opinions to
convey the flattery of implied trust and understanding.
The level of status between the ingratiator and target are
important. If the ingratiator is high status, they should
stress humility. If they are lower status, they should stress
their positive values.
Rendering Favors
It is unclear whether performing favors produces attraction
merely implies obligation for reciprocity. However,
performing a favor without any real hope of reciprocity
may be a very successful strategy.
ingratiating strategy
Negotiator Power Authority (Part 1 of 3)
As a negotiator, do you know the diference between
power and authority? Learn how people use their position
to influence and interact with their subordinates
To understand
**negotiations and the relationships (or common ground)
that emanate,
the study of power and its efect must first be fully
Every interaction and every social relationship, both inside
and outside organizations, entails the usage of power.
**Gibson et al. (1991:329) views power as an easy means
to accomplish things in the manner that you want them
performed. The power of the manager who wants more
financial resources for example, is in his skill to obtain
these resources.

Power is comprised of a relationship between two or more

people. The political scientist Robert Dahl (1957:202),
encapsulates this important relational focus in his
definition of power:
**'A has power over B to the extent that he can get B to do
something B would not otherwise do.
**A person or group cannot have power in isolation.
Power has to be exercised or deployed, or have the
potential of being deployed in relation to some other
person or group.
**Power is similar to a currency exchange. It is
meaningless unless linked or compared as an exchange
**Power is never linked to price, but always to value.'
Parity in Power
The concept of parity in power is crucial in any
**In a negotiation, parity of power is the perception by one
party that the other side can counter any form of power
with a similar or diferent form of power that would render
the further escalation of power useless.
Parity in power means that there must be a balance in
power deployment. Parity in power is key to the behaviour
of a successful negotiator.
In literature, power and authority are seen as distinct.
Authority is viewed as the formal power that a person has
because of the position that they possess in an
organisation (Gibson et al. 1989:330). Directives are orders
given by a manager in an authoritative position. These
orders are followed because they must be followed. This
means that people who hold higher positions have legal
authority over subordinates in lower positions. Power is the
unquestionable right of a person's position. This authority
is accepted by subordinates and it is

**used vertically in organizations.

**Influence, on the other hand, is simply potential power
**is the least amount of power that a person can deploy.
Throwing a karate punch on someone would demonstrate
relative power. Yet, were they to warn someone that they
possess a black belt in karate would mean that it is a
potential resource that might be used.
However, when power is used as a threat, it is crucial that
the negotiator remembers that
**a threat only has power so long as it is never used.
**Once used, a threat loses all its value.
Interpersonal Power
French and Raven (1959:150-167) have proposed that
there are five interpersonal bases of power that are
important to negotiators.
Legitimate power
Reward power
Coercive power
Expert power
Referent power
This article will only look at Legitimate power in this edition
of the Negotiation Times. The rest will be examined in the
remaining interpersonal power bases in following editions.
**Legitimate power comes from the ability to influence
because of position.
People at higher levels have power over the people below.
However, each person with legitimate power applies their
own individual style.
Subordinates have a primary function in the use of
legitimate power. **When subordinates accept the power
as legitimate, they comply.

However, the culture, customs and value systems of an

organization determine the limits of legitimate power. This
means that people will often act on directions, even the
ones they don't like, because it's the right and proper thing
to do, and because they are obliged to do so. This is
legitimate power.
Legitimate power is applied to negotiations in a variety of
ways. People with a lot of legitimate power could use their
authority to 'instruct' other parties to adhere to certain
procedures. Depending on the authority level of the
individual, the other negotiators could follow whatever is
decided by completely relying on the abilities of the
individual in authority.
Occasionally, one party will use legitimate power as a
tactic against another party by:
**Introducing someone who can influence important
decisions, and who has credibility with the other party, or
**Assigning a lot of legitimate power to an individual(s) in
opposing parties to use the need for power and status that
exists in all individuals to get major concessions from
them. This is occasionally called 'ingratiation' or stroking.
It is vital to understand that legitimate power only has
influence if it is viewed by others because it occurs only in
a social structure. A few negotiators may try to deny the
other party some of their legitimate power by:
**Preventing them from talking;
**Preferring to make reciprocal ofers while insisting the
other party continue to make concessions;
**Disregarding previous agreements on how to proceed; or
**Preventing the other party from having any legitimate
position of significance
**In these situations a negotiator may find it necessary to
establish some minimal legitimate authority before they

**In some instances, they may be advised to refuse to
proceed until the other party shows by their behaviour,
that the authority is in place.
**When a small base of legitimate authority is established,
a skillful negotiator can increase it.
Coercive Power and Reward Power Tactic (Part 2 of 3)
Do you understand the diferent types of power that can
ofer rewards, obedience or be used as a threat? Learn the
fundamentals of the reward power and coercive power
In the preceding article we examined Parity in Power,
(Parity in Power Part I of III) and situated the five diferent
types of Interpersonal Power that are at play. We examined
Legitimate Power in considerable detail.
In this portion, we will proceed to examine the next two
kinds of Interpersonal Power - Reward Power and Coercive
- Legitimate power- Reward power- Coercive power- Expert
power-Referent power
Reward power
Reward Power can be gained from one's capacity to
reward compliance.
**Reward power is used to support legitimate power.
When someone is rewarded or might receive a potential
reward such as through recognition, a good job
assignment, a pay rise, or additional resources to complete
a job, the employee may respond in kind by carrying
through with orders, requests and directions, according to
Gibson et al. (1991:331).
Rewards often comprises financial remuneration. They can

also be intangible as well. Studies have revealed that

verbal approval, encouragement and praise can very often
be very positive substitutes in place of tangible rewards.
Experiments involving positive reinforcement and
behaviour modification in the classroom or work setting
revealed that verbal rewards could consist of:
' extreme politeness',
' compliments', and
'praise' for past behaviour.
Non-verbal rewards might comprise:
"Giving individuals in the other party more space at the
Nodding of the head to signal your acceptance and that
you approve;
"Eye contact to indicate attention" and
"By using open and non-aggressive gestures to designate
acceptance and respect."
Rewards could also consist of verbal promises to gain
financially by establishing a relationship.
Ingratiation is occasionally referred to as the 'art of
flattery'. It is one example of the use of reward power in
social settings.
Friedman, Carlsmith and Sears (1974) provide a
fascinating synopsis on the afect of ingratiation in
interpersonal situations.
**Many of us realize that if other people like us, they will
be more prepared to perform favours for us.
**steve says, beautiful people get more help, because they
are liked as sex objects
**steve says, the obelisk secretary, 'she was a sex object,
and so she was very well liked, and men and women both
helped her often in the day.'

On the other hand, we are also aware that they will be less
likely or carry out actions if they dislike us.
"Individuals seeking to increase others' liking of them can
convince these persons that they share basic values or are
similar in other ways. "
The most common tactic of ingratiation in negotiation is to
complement the abilities of the people whom you wish to
influence. This tactic, frequently referred to as
**"other enhancement"
often entails the use of flattery - the exaggerated praise of
others. Such a tactic usually succeeds because people
tend to like the flatterer who is praising them.
It is common that the use of reward power seems to be
very efective, particularly in the longer term.
Reward power is occasionally combined with coercive
power, although the two diferent forms of power can be
subject to semantic confusion.
It is important to understand coercive power before
comparing it with and measuring it against reward power.
Coercive Power
**Coercive power is the opposite of reward power.
It is the ability of the power holder to remove something
from a person or to punish them for not conforming with a
For example:
Coercive power could take the form of a threatened strike
action by a labour union;
the threat of preventing promotion or transfer of a
subordinate for poor performance;
it could be a threat of litigation;
it could be at threat of non-payment;
it could be the threat to go public; and

it could even be a threat of physical injury.

All of these practices have one vital element in common the element of fear.
**The fear that these threats will be used is called coercive
It has frequently been noted that the use of coercive
power can leave behind its share of casualties.
**Although this is likely the reason why coercive power can
be efective,
**it is generally of short duration and
**can also generate a lengthy amount of dispute in its
**Parties to an integrative negotiation
**pay the costs before the actual agreement is reached,
**parties involved in a war often
**pay the cost later (and in many instances, for centuries
after the war has been fought).
**In the period from 1933 to 1945, millions of innocent
people were executed in Nazi Germany's gas chambers.
**The demise of this multitude was arranged by a single
individual who issued a series of commands to carry out
these horrific orders.
**The cement that enjoins command to action is
**Vasily Kronor**'mr. kronor came from around the corner.
'vasily. i just now came in to see you.'
The psychologist Stanley Milgram (1963) states that
**obedience is the psychological mechanism that
**links individual actions to political purpose.
**It is the dispositional adhesive that ties people to
systems of authority.

**Human history has seen a multitude of atrocities

because of our tendency to obey orders.
Several historians have observed that
**crimes against humanity has occurred
**more often as a result of obedience
**than due to any other form of rebellion.
**steve says, 'than due to any form of rebellion,' not, 'any
other form of rebellion.'
**The trouble that stems from obedience to authority is
almost as old as humanity itself.
**This is one of the reasons why authority figures can be
extremely efective when negotiating with subordinates.
Comparing reward power and coercive power
In spite of how coercive power can have an incredible
short-lived efect, it should appear fairly obvious that
reward power is, according to Lewicki et al (1985:247), far
more likely to generate coveted results, with less close
observation and control than coercive power.
**et al.: an abbreviation for the Latin phrase et alia which
means 'and others.'
'the article was written by smith, jones, paul, et al.' means
that smith, jones, paul and others wrote the article.
**'et al.' is a way of obfuscating that others aided those
who would have their proper names addressed;;; 'et al.' is
a linguistic power play, and 'and others', being better
understand in the language of the native reader, should be
used, thereby giving due credit to underlings and minions
who had probably done most of the work involved
Yet, the use of coercion in negotiations is a common
occurrence. When simple persuasion fails, emotions erupt,
when self-esteem is under attack, or when avarice eclipses
the understanding of the application of its potential cost,
the use of coercion through threats and hostile language

will likely increase. During these moments the emotional

expression of anger or feelings of frustration and
impotence may engulf the rational perception and benefits
provided by reward strategies.
Referent Power Information Expertise
Expertise conveys integrity in the individual who possesses
specialised information. Learn how you might counter the
expert and how to understand the limits of their personal
referent power
During the previous two installments of The Negotiation
Times, we examined Parity in Power and situated the five
diferent types of Interpersonal Power that are at work.
We looked at
Legitimate Power,
Reward Power and
Coercive Power
in considerable detail.
This final article will complete this three part series by
delving more deeply into the remaining two types of
Interpersonal Power - Expert Power and Referent Power.
- Legitimate powerReward powerCoercive powerExpert powerReferent power
Expert Power
**Any individual person who has an expertise that is highly
valued possesses expert power.
**Experts have power even though their status might be
regarded as being low.

A person may have expert knowledge about technical,

administrative, or personal matters.
**The harder it becomes to replace an expert; the higher
becomes the degree of expert power that they possess.
Expert power is occasionally called
**information power
and is frequently a personal trait of the individual.
A personal assistant for example, who has lower status in
the organisation may also possess a degree of high expert
power because they have extensive knowledge of how the
business operates such as knowing where everything is
located or are able to deal with difficult situations.
Lewicki et al. (1985:249) states that people and countries
will act sensibly when they have used up all other
available possibilities. In any negotiation situation, expert
power is the most standard type of power that is applied.
Expert power consists of the persuasive nature of the
information itself. It pertains to the amassing of
information and how it is presented and is used with the
intent of changing of how a counter party views the issues.
It is the contention of Lewicki et al. (1985:251) that expert
power is a unique kind of information power.
**Information power can be applied by any individual who
has studied and prepared their position prior to the start of
a negotiation.
According to Lewicki et al, expert power is rendered to any
individual who are perceived as having mastered and
organized a great abundance of information.
Lewicki et al. believe that there are processes that a
negotiator can use to establish their expertise in the mind

of the other party:

**By quoting facts and figures.
**By 'name dropping'.
**By referring to documented examples of highly regarded
**By becoming visible with the press or other people, or
from published works in recognized journals.
**Presentation of information
From the negotiation perspective, information power is at
the central core of expert power. The manner in how
information is presented can severely impact the results of
even the simplest negotiation. From this viewpoint, it is
apparent that visual aids like charts, graphs and good
statistics have a significant influence on a negotiation.
In preparation for a negotiation some of the more
important and relevant information that should be
gathered prior might include,
researching the market on other prices in the area,
researching consumer opinions, and
the financial position and the interests of local suppliers.
**Always be cautious with this information and
**always ensure that the information is reliable.
If the information you've acquired is shown to be untrue,
the consequence might be that you might seriously
damage the trust already built into the negotiation in a
serious manner.
Information power is commonly applied in a distributive
manner. This allows the information to be manipulated so
that it can manage the options that are available to the
other party.
**The counter party's choice of behaviour for example, is
**afected by transmitting positive information to your

opponent about the option we want them to opt for, or by

**hiding information about an option we don't want them
to choose.
There are a few instances where experts are introduced
into the negotiations because people are less likely to
bicker with a perceived expert in their field of expertise.
**To efectively tackle this challenge, the non-expert would
most likely have to consult with another expert. This would
be expensive, time consuming and entail some risk. The
non-expert would visibly expose their lack through their
body language, posture and speech.
Countering good information
Countering information power can be problematic.
When information or an expert is brought in to counter act
the other side's information, the dispute could escalate.
The resulting efect of escalation will be negative as there
will likely be no resolution or agreement. On the other
hand, a positive result could occur where the parties seek
positive alternative solutions during the negotiation
So the best approach would be to:
**Explore all the information at hand
**You must recognise the expert for what they really are.
All experts possess an expertise in a certain field, but
rarely does their expertise extend to cover the entire field
under discussion in the negotiations.
**One should be either very specific or very general in
their negotiations. It all depends on the posturing of the
opposition. For example, should your counter party present
information that is very specific, you can efectively
counter by ofering very general information in return.
Referent Power

Normally, people are influenced and tend to identify with a

person because of their personality or behaviour. The
magnetic appeal of this individual forms the basis of
referent power. A person with an appealing personality is
admired because of their personality.
**The power of an individual's appeal is an indication of
their referent power.
Charisma is a term used to describe the magnetic
personalities of some politicians, entertainers and sports
figures. There are also a few managers who are also seen
by their subordinates as possessing this magnetic appeal.
**Referent power is occasionally called personal power.
**It is premised on the target's attraction to the power
holder liking,
perceived similarity,
desire to be close to or friendly with the power holder.
**This attraction may due to
physical attractiveness,
lifestyle or position,
but can also include
and so on.
**People who are truly charismatic are those individuals
who possess a distinct mix of physical traits, speech,
mannerisms and self-confidence.
**They are capable of influencing a very large group of
people by their actions.
**Referent power stems from the need of an individual to

identify with people of influence or attractiveness.

The greater a person admires or identifies with an
individual, the more referent influence can be exerted by
the power holder which gives them more control because
of this identification.
**This type of power is often considered as one of the most
potent in a negotiation.
Governments that negotiate internationally understand
how vital it is to send professional negotiators or
individuals who possess special qualities of referent power
when negotiating on their behalf.
**If personal power is misused by any of the negotiating
parties, the consequence could result in an immense lack
of trust.
**Personal power is rarely affiliated with destructive tactics
of any kind, because individuals with an abundance of
personal power will frequently seek to discover
agreements that could augment both parties and not leave
any victims in the aftermath as they would lose their
source of attractiveness.
The personal integrity of a person in the counter party's
negotiation team could be a powerful foundation for
common ground in negotiations. Many negotiators utilise
the integrity of the parties and the established relationship
between individuals as the strongest bond that exists
between negotiating parties. The bond which stems from
their integrity encourages the parties to find solutions for
any conflict that may arise.
Negotiator Power Authority
search engine optimization
'State of' Searchers

Happy All-Hallows Day

All Saints Day
In Western Christian theology,
All Saints Day commemorates all those who have attained
the beatific vision in Heaven.
1. The @ZWS tweets mug
**Search Love conference in London
**direct linkbait opportunities
**QR code and word cloud.
**Send a mug as a small present
**Personalise said mug by including a word cloud of the
phrases included in their 200 most recent tweets
**Dont say who its from or why you sent. Instead include
a QR include directly on the mug that explains who you
**Get the speaker to tweet about how lovely their mug is
and thank you for your generosity.
**Watch your name feature on twitter walls of a
conference in front of hundreds of attendees and be
remembered by some of the biggest names in the industry.
Not bad for the cost of a few personalised mugs and a little
postage now is it?!
The SEO Fashion egobait
Another idea that I saw after the recent conference, joining
up the rather unusual worlds of
**Streetstyle and SEO.
Step 1. Attend any kind of industry event
Step 2. Take a camera
Step 3. Approach people la Streetstyle, take a photo and
ask them about their style.
Step 4. Blog about it and let those people know their

photos are now on the world wide web because they are so
very stylish.
Step 5. Watch the tweets and mentions roll in.
3. The quick and easy infographic
I know were all sick to the back teeth of infographics
but they do still work if done well and it really is amazing
how easy it is to find the information you need to build
especially around popular events such as Halloween.
Tip: A go-to source for stats (USA only): National Retail
Federation. Its a goldmine.
All you need to do is get a freelance designer for a couple
of hours to add a few pictures of carefully sliced up
pumpkins and some witches hats, there you have it. Your
very own infographic in no time at all, with freely available
**steve says, an example of a person with a skill being
used as a tool, the designer, and tools get paid little
**steve says, this is a great example of misplaced hard
work;;; do not work hard at being a tool, for that gives your
fruit to others, but instead WORK HARD AT GIVING
YOURSELF OPTIONS, like networking, relationships
between businesses, and niches and loopholes which are
pockets of profit
4. The ofer-free-stuf-for-one-day campaign
This is the most recent example of a great brand building
campaign, and it got me a free burrito for lunch so I have
certainly been mollified more than enough to include it in
this write-up.
Benitos Hat, a Mexican burrito restaurant, spent the day
ofering free burrito drops to offices in its local area who
got the most members of staf to tweet a request for one

with the hashtag #dayofthedead. Well you certainly didnt

have to ask us lot twice!
Step 1. Calendarise the year and decide when doing
events like this would make the most sense for your
Step 2. Be generous! There is no point in doing this unless
the reward makes it worthwhile
Step 3. Tweet, FB, Shout, Blog tell everybody everywhere
Step 4. Watch it go viral
Step 5. Be prepared to make a lot of free goods!
Step 6. See and hear your business name in all corners of
social media, with a hugely positive spin.
One extra point that I think Benitos Hat did so well is that
they not only ofered the free food, they also encouraged
people to come directly to the shop by ofering 50% to
anyone who came in fancy dress or makeup.
50% of may be a huge cutback but its all adding to the
buzz around the ofer and gets the punters directly into
your door. Good job Benito!
5.Come up with a brilliant idea for a site!
boost visibility,
brand recognition and
link building
My Tab is a simple site that
**aims to encourage people to plan and save for a trip,
**while also encouraging friends and family to donate to it
to help you achieve your goals, instead of getting physical
**It is fully integrated with social platforms
**as well as secure financial platforms such as PayPal.
The combination of

targets and
make it a winner for me.
It has also been picked up by a number of big blogs
including Mashable and Travolution.
5 social tactics
5 Negotiating Tips to Uncover Hidden Agendas
Hidden agendas are the personal, private goals and
objectives that impact how we publicly negotiate.
Everyone has these agendas. Very likely your hidden
agenda will be far diferent than the other person's or even
those of co-negotiators.
**Hidden agendas are the meat and potatoes of good
**steve says, notice dumbledoor had a hidden agenda!
**Good leaders have a sense of mission, a purpose that
garners the respect of others.
**Negotiators who can demonstrate these same leadership
traits will garner the same respect. Just as leaders can
impact the outcome of meetings so too can efective
negotiator-leaders impact the outcome of a negotiation.
**Every participant in a negotiation has a personal agenda.
Those agendas are hidden unless they are shared with the
group and
**most people don't openly share personal agendas.
**If they did, there would be little mystery or drama in life
or our personal interaction.
So how do you uncover another's hidden agenda?
By being a good detective:

1. Ask questions. Soliciting the other person's needs and

2. Ask follow-up questions designed to cross-check or
validate previous answers.
3. question responses. It is important to understand what
you are being told.
4. Gather and digest the responses to develop a basic
understanding and appreciation of the other person's
perspective, basic needs and stated wants regarding the
5. Observe the non-verbal reactions that may indicate
responses that are less than forthright.
**Negotiation is far more than simply sitting at the table
and exchanging proposals.
**It is the process of learning enough about the other
person to be able to engage the person in a dialogue that
makes that person want or need to work with you.
Negotiating Tips - Seven Basic Steps Before You Negotiate
Negotiation is the process of working through various
phases while you learn enough about the other person or
team to be able to engage the other person in a dialogue
that makes the other person want or need to work with
**Remember, negotiating is about your getting the other
person to do something that you want done.
**The other person has to eventually be motivated to act.
**Negotiation is the process of establishing that
The seven basic steps leading up to any negotiation
1. Identification of the problem.

**It is essential to establish what the issue is before you

try to resolve it.
Often arguments occur because you and the other person
are discussing diferent issues or the crossover relationship
is not apparent to one of you.
2. Researching the issues.
Knowing what the issue is allows you to do the basic
research into why you are in disagreement and how
important the issue is to you.
3. Selecting the participants.
**Both you and the other person are entitled to add or
object to a potential participant in any negotiation.
How the two sides populate their teams usually will have
an impact on the outcome.
**Among other things you should try to keep people out of
the negotiation who tend to inflame the situation.
4. Researching the participants.
Once you and the other person have established the
people to be involved in the discussion/negotiation you
need to assess who The other person has on his or her
team, why they were added and what position they are
likely to advocate. The other person's selection of conegotiators will indicate the areas he feels are important to
his position or the areas he feels he lacks expertise.
5. Preparing for the negotiation.
Before you actually start any negotiation take a few
moments or a few weeks, depending on the importance
and complexity of the negotiation, to prepare for the
negotiation session.
a. Separate facts from assumptions.

Understand what you know about the situation and what

you assume to be true.
b. Validate your facts.
Sometimes facts change. Make sure your information is
current. If you can't do this, consider the unverified facts to
be assumptions.
c. Validate your assumptions.
Assumptions should be validated by third party
confirmation or simply asking the other person if they are
d. Test your assumptions.
Assumptions that can't be validated need to be tested or
discarded. Erroneous assumptions can impair an otherwise
sound negotiating strategy. Don't set yourself up for failure
relying on an invalidated assumption because you like it or
it helps your case.
e. Adjust your strategies.
Using the newly acquired information, make sure your
initial strategies, objectives and goals are still appropriate.
The new information can often change strategies and on
occasion can obviate the disagreement altogether.
6. Meeting the Participants.
When the participants first get together to start the
negotiation there is usually a short period of time when
people meet each other and get settled. This is an
excellent period during which you should take the measure
of everyone about to take a seat at the table.
**Observe who are comfortable and who appear uneasy.
Participate in casual conversations to determine the
interests and backgrounds of the other person's conegotiators. Make sure your advocates are comfortable
and ready.
7. Establishing the parameters of the situation.
Once seated at the table it is helpful to make sure
everyone is aware of the issues to be discussed and
uncover any new issue that needs to be addressed. If new
information is provided or the issues changed feel free to

take a break to reflect or regroup with your team if

You are now ready to enter into the negotiation.
**This is most typically done by asking or soliciting an
initial ofer.
**The early stage of any negotiation should be used to
establish the parameters of the situation. That is, the
bid/ask disparity between you and the other person.
Each step deserves to be mentally considered before it is
undertaken. A negotiator should
plan, and
on the sub-task or individual step level to maximize the
potential from the process.
**The skill is in the preparation and
**the art is in the execution.
**steve says, learn on practice day, recite on game day; do
not learn on game day, do not recite on practice
day**closed on game day, open on practice day**
**ironically, LIFE is game day and practice day
simultaneously, so open when alone, closed when in
society;;; but then, when does one make friends? for
everything in society is secret;;; therefore, one must
reverse, be open when social in order to be honest, yet
aware of predators, stop attacks verbally, not
Obviously more complex negotiations will have added
steps and a more detailed approach but even simple
negotiations can be better resolved if these steps are
fleetingly considered before you enter the fray with the
other person.
**Negotiating Requires Knowing Your Bottom Line

**A key strategy in any negotiation is establishing your

'bottom line.' Knowing your "bottom line" is one of the
most important aspects of being a good negotiator.
**The bottom line is the minimum or maximum acceptable
threshold that you will accept concerning a given situation.
It is the point at which you should decide not to continue
to try to hold things together and simply walk away from
the opportunity.
**Constantly revising is part of a negotiator's strategy
because negotiating requires knowing your bottom line or
the limits you are willing to go to win an argument or
closing a sale or purchase.
Your "bottom line" depends on each negotiating event and
can change as your situation changes.
Typically in the business environment the negotiating
parameters are mandated by company objectives,
limitations and policy. Working within these guidelines
allows company negotiators to negotiate with confidence
that they will be able to deliver on the promises they make
during a negotiation.
Knowing these corporate bottom line parameters also
signals when the negotiator should leave the discussion to
seek more guidance or look for another opportunity for the
company. Thus knowing the company parameters
empowers the company negotiator.
We are used to setting minimum or maximum parameters
in the business or professional environment.
**In personal situations negotiating requires knowing your
bottom line or the limits you are willing to go to win an
**There is no reason the same discipline cannot and
should not apply to interpersonal/family situations.
When you are negotiating personal matters ranging from

credit card debt to what to do about an errant son or

daughter you should try to set the point at which you are
no longer willing to negotiate.
**This is especially important on the personal side as
conceding too much only teaches your spouse or child that
you will continue to do so and that he or she should
continue to press their argument until you cave.
**This conceding on your part rewards bad behavior rather
than deters it.
**If you continually do this when disciplining a child you
will raise a spoiled child who, later in life, may well have
difficulties relating to his or her spouse when the 'adult
child' doesn't get his or her way.
**As parents it is our responsibility to teach our children
how to negotiate in a productive fashion so they can get
along after they leave the nest.It is even more important
when dealing with an overbearing spouse. Your
concessions will not only make the other person expect to
prevail, it will cause you to lose respect for yourself and
become even more dependent on what could become a
damaging relationship.
Not to belabor the point but I need to point out here that I
am not advocating never conceding. Just the opposite as
we all need to be willing to 'give and take' to make any
relationship work. What I am saying is that it is helpful to
know in advance at what point we will no longer be willing
to ofer further concessions.
To make this point graphically, a woman must draw the
line at being physically abused. To let this type of behavior
occur without recourse is simply asking for a bad outcome.
Negotiating requires knowing your bottom line or the limits
you are willing to go to win an argument or closing a sale
or purchase. When you approach your predetermined
bottom line, the point where it's appropriate to be willing
to bluf before walking away, you have two choices;
bluffing or walking away.

Depending on the potential impact on the relationship and

how much you value the relationship, bluffing should only
be considered as a last resort tactic.
It should be reserved until all you have at risk is failure
itself and you are fully prepared to walk away from the
relationship as well as the situation because if you are
caught in a bluf your credibility, integrity or sincerity will
be damaged.
What is Conflict Resolution
Conflict between people, any two people or larger groups
of people is a fact of life. We are diferent people. We have
difering wants and needs. This means our goals and
objectives are in conflict most of the time; even when we
are on the same team. Conflict is normal and healthy as
long as it can be resolved preserving the relationship of
the people involved.
Conflict exists within families, among peers, friends and
neighbors. It exists at work, church, school and simply
along the street among strangers. Conflict resolution is the
process by which we handle the conflict in our lives.
There are many ways we try to resolve conflict. By
surrendering, running away, fighting, litigation of filing a
complaint with the human resource department.
Alternative Dispute Resolution (ADR), AKA conflict
resolution, is more civilized than violence and typically
cheaper and quicker than litigation.
Common forms of conflict resolution include negotiation, a
discussion among two or more people with the goal of
reaching an agreement, mediation, a voluntary and
confidential process in which a neutral third-party
facilitator helps people discuss difficult issues and
negotiate an agreement, and arbitration, a process in
which a neutral third-party acts as a judge of the dispute

and decides the outcome for the parties.

But conflict resolution need not be so formal. Essential we
each resolve conflict throughout every day of our lives. We
don't consider our parents, siblings, bosses, employees,
teachers and students to be warring factions but the
conflicts with these people in our lives can be far more
complex that some territorial skirmish between nation
When resolving our personal conflicts becomes more than
we can handle there are some approaches than ofer help.
This assistance can be provided by your church, school,
employer or even another family member.
But if you want something a little more formal, consider:
Evaluation by a Third-Party
This involves enlisting a unbiased attorney, arbitrator or
other professional to review the situation and try to
facilitate a resolution by explaining the cost of litigation
and likely outcome if the case. The parties then can assess
if it is worth litigating or would they be better of just
settling and moving on.
Peer Referendum
This approach uses a common and respected friend,
associate or family member to both of the parties is asked
to help resolve the dispute. By having another person hear
the complaints of both sides and ofer a fresh objective the
angst of one-on-one fighting can be mitigated and
solutions struck.
It is important to remember that conflict is a normal and
necessary part of any healthy relationship.
**Life would be far too boring if no one disagreed with you
or objected to something you were doing.
**And how would we ever learn anything new if we were
never challenged by our teachers, parents or employers?

**steve says, our need for conflict is one example of why

utopia and heaven do not really exist, for utopia and
heaven are static while humans are dynamic, and cannot
successfully be static**
How we deal with conflict in large part determines the
quality of our lives. When mismanaged relationships can
be tested and even harmed. By developing efective
conflict resolution techniques and skills your personal and
professional lives should prosper.
5 Negotiating Tips to Uncover Hidden Agendas
ingratiating negotiating social tactics
Goldmans Fabulous Fab Expected to Be the Only One Left
Standing When the Market Collapsed
More and more leverage in the system,
The whole building is about to collapse anytime now!
Only potential survivor, the fabulous Fab[rice Tourre]
standing in the middle of all these complex, highly
leveraged, exotic trades he created without necessarily
understanding all of the implications of those
monstrosities!!!" a portion of an e-mail, translated from
the French, from 31-year-old Goldman Sachs vicepresident Fabrice Tourre, to a friend on January 23, 2007.
The S.E.C today filed securities charges against Tourre and
Goldman Sachs, alleging that the company misled
investors about the health of subprime-mortage securities.
**valdis kronor sends to friend; but friend who?;;; how can
valdis have a friend? must be from high school, and field is
fabrice of goldman sachs
The Great American Bubble Machine

From tech stocks to high gas prices, Goldman Sachs has

engineered every major market manipulation since the
Great Depression -- and they're about to do it again
The first thing you need to know about Goldman Sachs is
that it's everywhere.
**The world's most powerful investment bank is a
**great vampire squid wrapped around the face of
humanity, relentlessly jamming its blood funnel into
anything that smells like money.
**In fact, the history of the recent financial crisis,
**which doubles as a history of the rapid decline and fall of
the suddenly swindled dry American empire, reads like a
Who's Who of Goldman Sachs graduates.
**Invasion of the Home Snatchers
**steve says, compare to horror story and movie, 'invasion
of the body snatchers'
How foreclosure courts are helping big banks screw over
The foreclosure lawyers down in Jacksonville had warned
me, but I was skeptical. They told me the state of
**Florida had created a special super-high-speed housing
court with
**a specific mandate to rubber-stamp the legally dicey
foreclosures by corporate mortgage pushers like Deutsche
Bank and JP Morgan Chase.
**This "rocket docket,"
as it is called in town, is
**presided over by retired judges
who seem to have no clue about the insanely complex
financial instruments they are ruling on securitized
mortgages and labyrinthine derivative deals of a type that
didn't even exist when most of them were active members
of the bench.

**Their stated mission isn't to decide right and wrong,

**but to clear cases and blast human beings out of their
homes with ultimate velocity.
They certainly have no incentive to penetrate the profound
criminal mysteries of the
**great American mortgage bubble of the 2000s, perhaps
**the most complex Ponzi scheme in human history
an epic mountain range of corporate fraud in which
**Wall Street megabanks conspired first to collect huge
numbers of subprime mortgages, then
**to unload them on unsuspecting third parties like
trade unions and
insurance companies
(and, ultimately, you and me, as taxpayers)
in the guise of AAA-rated investments.
**Selling lead as gold, shit as Chanel No. 5,
was the essence of the booming international fraud
scheme that created most all of these now-failing home
Looting Main Street
How the nation's biggest banks are ripping of American
cities with the same predatory deals that brought down
If you want to know what life in the Third World is like, just
ask Lisa Pack, an administrative assistant who works in the
roads and transportation department in Jeferson County,
Pack got rudely introduced to life in post-crisis America last
August, when word came down that she and 1,000 of her
fellow public employees would have to take a little unpaid
vacation for a while. The county, it turned out, was more
than $5 billion in debt
**meaning that courthouses, jails and sherif's precincts

had to be closed so that Wall Street banks could be paid.

Wall Street's Bailout Hustle
Goldman Sachs and other big banks aren't just pocketing
the trillions we gave them to rescue the economy
they're re-creating the conditions for another crash
On January 21st,
**Lloyd Blankfein
left a peculiar voicemail message on the work phones of
his employees at Goldman Sachs. Fast becoming
**America's pre-eminent Marvel Comics supervillain, the
used the call to deploy
**his secret weapon: a pair of giant, nuclear-powered
In his message, Blankfein addressed his plan to
**pay out gigantic year-end bonuses amid widespread
controversy over Goldman's role in precipitating the global
financial crisis.
The bank had already
**set aside a tidy $16.2 billion for salaries and bonuses
meaning that Goldman employees were each set to take
home an average of $498,246,
a number roughly commensurate with what they received
during the bubble years. Still, the troops were worried:
There were rumors that Dr. Ballsachs, bowing to political
pressure, might be forced to scale the number back. After
all, the country was broke, 14.8 million Americans were
stranded on the unemployment line, and Barack Obama
and the Democrats were trying to recover the populist high
ground after their bitch-whipping in Massachusetts by
calling for a "bailout tax" on banks.
**Maybe this wasn't the right time for Goldman to be
throwing its
**annual Roman bonus orgy.
Not to worry, Blankfein reassured employees.

**"In a year that proved to have no shortage of story

lines," he said,
**"I believe very strongly that performance is the ultimate
We made a shitload of money last year because we're so
amazing at our jobs, so fuck all those people who want us
to reduce our bonuses.
**steve says, the banks have turned a corner into
imaginary calculations akin to integers to force =
mass(speed^2), the speed^2 is the new thinking, that
acceleration is speed in two dimensions::: the banks are
calculating in a new dimension, which is for the control of
humanity, not for the justice of the individual**
Wall Street's Big Win
Finance reform won't stop the high-risk gambling that
wrecked the economy and Republicans aren't the only
ones to blame
Cue the credits: the era of financial thuggery is officially
Three hellish years of panic, all done and gone
the mass bankruptcies,
midnight bailouts,
shotgun mergers of dying megabanks,
high-stakes SEC investigations,
all capped by a legislative orgy in which industry lobbyists
hurled more than $600 million at Congress.
It all supposedly came to an end one Wednesday morning
a few weeks back, when President Obama, flanked by
hundreds of party flacks and congressional bigwigs,
stepped up to the lectern at an extravagant ceremony to
sign into law his sweeping new bill to clean up Wall Street.
Obama's speech introducing the massive law brimmed

with celebratory finality. He threw around lofty phrases like

"never again" and "no more." He proclaimed the end of
unfair credit-card-rate hikes and issued a fatwa on abusive
mortgage practices and the shady loans that helped fuel
the debt bubble. The message was clear: The sherif was
padlocking the Wall Street casino, and the government
was taking decisive steps to unfuck our hopelessly broken
But is the nightmare really over, or is this just another
Inception-style trick ending?
It's hard to figure, given all the absurd rhetoric emanating
from the leadership of both parties.
Obama and the Democrats boasted that the bill is the
"toughest financial reform since the ones we created in the
aftermath of the Great Depression" a claim that would
maybe be more impressive if Congress had passed any
financial reforms since the Great Depression, or at least
any that didn't specifically involve radically undoing the
Depression-era laws.
Wall Street's Bailout Hustle
The Republicans, meanwhile, were predictably hysterical.
They described the new law officially known as the DoddFrank Wall Street Reform and Consumer Protection Act as
something not far from a full-blown Marxist seizure of the
means of production.
**House Minority Leader
**John Boehner shrieked that it was like
**"killing an ant with a nuclear weapon," apparently
forgetting that
**the ant crisis in question wiped out about 40 percent of
the world's wealth in a little over a year, making its
smallness highly debatable.

But Dodd-Frank was neither an FDR-style, paradigmshifting reform, nor a historic assault on free enterprise.
What it was, ultimately, was a cop-out, a Band-Aid on a
severed artery.
**If it marks the end of anything at all, it represents the
end of the best opportunity we had to do something real
about the criminal hijacking of America's financial-services
During the yearlong legislative battle that forged this bill,
Congress took a long, hard look at the shape of the
modern American economy and then decided that it
didn't have the stones to wipe out our country's one dependably thriving profit center: theft.
It's not that there's nothing good in the bill. In fact, there
are many good things in it, even some historic things. Sen.
Bernie Sanders and others won a fight to allow Congress to
audit the Fed's books for the first time ever. A new
Consumer Financial Protection Bureau was created to
protect against predatory lending and other abuses.
New lending standards will be employed in the mortgage
industry; no more meth addicts buying mansions with
credit cards. And in perhaps the biggest win of all, there
will be new rules forcing some varieties of
**derivatives the arcane instruments that
**Warren Bufett called
**"financial weapons of mass destruction"
to be traded and cleared on open exchanges, pushing
what had been a completely opaque market into the light
of day for the first time.
All of this is great, but taken together, these reforms fail to
address even a tenth of the real problem.
Worse: They fail to even define what the real problem is.
Over a long year of feverish lobbying and brutally intense
backroom negotiations, a group of D.C. insiders fought

over a single question:

Just how much of the truth about the financial crisis should
we share with the public?
Do we admit that control over the economy in the past
decade was ceded to a small group of rapacious criminals
who to this day are engaged in a mind-numbing campaign
of theft on a global scale?
Or do we pretend that, minus a few bumps in the road that
have mostly been smoothed out, the clean-hands
capitalism of Adam Smith still rules the day in America?
In other words, do people need to know the real version, in
all its majestic whorebotchery, or can we get away with
some bullshit cover story?
In passing Dodd-Frank, they went with the cover story.
During an other-wise deathly boring year spent covering
this debate, I learned to derive some
**entertainment from watching politicians scramble to give
floor speeches about financial reform without disclosing
the fact that
**they didn't have the first fucking clue what a creditdefault swap is, or how a derivative works.
This was certainly true of Democrats, but the Republicans
were way, way better at it. Their strategy was brilliant in
its simplicity: Don't even bother trying to figure out the
math-y stuf, and instead just blame the entire crisis on
government eforts to make homeowners of lazy black
"Private enterprise mixed with social engineering" was how
Sen. Richard Shelby of Alabama put it, with a straight face,
not long before the bill passed.
**there is always social engineering occurring, always one
of two sorts: the kind you are familiar with and improves
your own personal life, and the kind you know nothing
about and are terrified of.**

The argument favored by Wall Street lobbyists and

Obama's team of triangulating pro-business Democrats
was more subtle. In this strangely metaphysical version of
recent history, the economy was ruined by bad luck and a
few bad actors, not by any particular law or policy. It was
the "guns don't kill people, people kill people" argument
expanded to cover global financial fraud. "There is an
assumption that math is evil," insisted Keith Hennessey, a
member of the Financial Crisis Inquiry Commission, at a
hearing in June. "Credit-default swaps are things, and
things can't be culprits."
Both of these takes were engineered to avoid an
uncomfortable political truth: The huge profits that Wall
Street earned in the past decade were driven in large part
by a single, far-reaching scheme, one in which bankers,
home lenders and other players exploited loopholes in the
system to magically transform subprime home borrowers
into AAA investments, sell them of to unsuspecting
pension funds and foreign trade unions and other suckers,
then multiply their score by leveraging their phonybaloney deals over and over. It was pure financial alchemy
turning manure into gold, then spinning it
Rumpelstiltskin-style into vast profits using complex,
mostly unregulated new instruments that almost no one
outside of a few experts in the field really understood. With
the government borrowing mountains of Chinese and
Saudi cash to fight two crazy wars, and the domestic
manufacturing base mostly vanished overseas, this
massive fraud for all intents and purposes was the
American economy in the 2000s; we were a nation
subsisting on an elaborate check-bouncing scheme.
And it was all made possible by two major deregulatory
moves from the Clinton era: the Gramm-Leach-Bliley Act of
1999, which allowed investment banks, insurance
companies and commercial banks to merge, and the
Commodity Futures Modernization Act of 2000, which exempted the entire derivatives market from federal

regulation. Together, these two laws transformed Wall

Street into a giant casino, allowing commercial banks to
act like high-risk hedge funds, with a whole new galaxy of
derivative bets to lay action on. In fact, the laws made Wall
Street even crazier than a casino, because in a casino you
have to put up actual money to make bets. But thanks to
deregulation, financial companies like AIG could bet
billions, if not trillions, without having any money at all to
back up their gambles.
Dodd-Frank was never going to be a meaningful reform
unless these two fateful Clinton-era laws commercial
banks gambling with taxpayer money, and unregulated
derivatives being traded in the dark were reversed. The
story of how the last real shot at reining in Wall Street got
routed tells you everything you need to know about how,
and on whose behalf, our government works. It was
Congress at its most cowardly, deceptive best, with both
parties teaming up to subject reform to death by a
thousand paper cuts with the worst cuts coming, literally,
in the final moments before the bill's passage.The first of
the two final battles coalesced around an efort by Sens.
Carl Levin of Michigan and Jef Merkley of Oregon to
implement the so-called "Volcker rule," a proposal
designed to restore the firewall between investment
houses and commercial banks. At the heart of MerkleyLevin was one key section: a ban on proprietary trading.
"Prop trading" is just a fancy term for banks gambling in
the market for their own profit. Thanks to the Clinton-era
deregulation, giant commercial banks like JP Morgan Chase
were not only allowed to serve as investment banks,
accumulating mountains of privileged insider information,
they were allowed to play the markets themselves. That
meant that the prop-trading desk at Goldman Sachs could
bet heavily against Greek debt not long after the bank had
saddled Greece with toxic interest-rate swaps. It also
meant that if any of these "too big to fail" banks went
bust, American taxpayers would be expected to bail them
out. The Volcker rule pushed by Paul Volcker, the former
Fed chief and current Obama adviser aimed to lay down

a simple law for big banks: If you want to gamble like a

drunken sailor, fine. Just don't expect us to mop up the
mess after you puke your guts out.
If Obama's team had had their way, last month's debate
over the Volcker rule would never have happened. When
the original version of the finance-reform bill passed the
House last fall heavily influenced by treasury secretary
and noted pencil-necked Wall Street stooge Timothy
Geithner it contained no attempt to ban banks with
federally insured deposits from engaging in prop trading.
But that changed when Scott Brown, the Tea Party darling
from Massachusetts, blindsided the Democrats by wresting
away the seat of deceased liberal icon Ted Kennedy. With
voters seething over Wall Street's rampant thievery and
fraud, the Democrats suddenly got religion about reckless
gambling by the financial industry.
Brown won his election on January 19th; just two days
later, on January 21st, President Obama pulled a 180 and
announced his support for the Volcker rule. Throughout the
reform process, Volcker a legendary figure whose
demands for greater responsibility and transparency have
alarmed Wall Street had been forced to take a back seat
to Geithner, at one point even sharply criticizing the House
bill in open testimony. For the White House to suddenly
throw its weight behind Volcker took the Hill by surprise. It
was a "complete change of policy a fundamental shift,"
observed Simon Johnson, an MIT economist and noted
financial analyst.This was clearly the administration's attempt to get back on the right side of populist anger at
Wall Street. So when Merkley and Levin took up the job of
transforming Volcker's proposal into legislative reality, they
assumed the Democratic leadership would be on their
It didn't work out that way. The counterattack began in
May, when the Republicans objected to Merkley-Levin and
invoked the Senate's unanimous-consent rule, by which no
amendment comes to the floor unless all 100 members
agree to let it be voted on. That left the Volcker rule in

legislative purgatory right up to the initial Senate vote on

the bill. In interviews, the soft-spoken, gregarious Merkley
steadfastly refuses to point the finger at the Democratic
leadership for failing to break the legislative logjam. But
reading between the lines, it's obvious that he and Levin
were on their own no one with any juice in the key
committees lifted a finger to help them. The two senators
were like underage geeks who'd been told by Majority
Leader Harry Reid that they had to come up with their own
keg if they wanted to come to the party.
But come up with a keg they did. On the week of the first
Senate vote, Merkley's stafers pored over Senate
procedural rules and discovered an arcane clause that
allowed them to attach their proposal to an amendment by
Republican Sam Brownback of Kansas designed to exempt
auto dealers from regulation by the new Consumer
Financial Protection Bureau. The Brownback amendment
had already been approved for a vote, so once Merkley's
people used the remora-fish tactic of sticking to
Brownback, there was seemingly no way to prevent
Merkley-Levin from going to a vote.
Or so they thought. "We were plumbing the inner rules of
the Senate," Merkley says. One of those rules is that when
you attach your amendment to another, your measure has
to be "germane" to the amendment you're attaching it to.
Since Merkley-Levin's ban on prop trading and
Brownback's auto-dealer exemption were completely
diferent, this was not a simple thing to accomplish. So Merkley and Levin personally trekked down to one of the
more obscure offices in the congressional complex.
"Carl Levin and I went on a trip down to the
parliamentarian's office, where I'd never been," Merkley
says. "They briefed us on what it took, and the team set
about to make it work."
From there, Merkley and Levin hit the phones to lobby
other members, including Republicans. Right up to the
final vote on May 20th, they thought they had a real shot.
"I got the sense that we might pick up quite a few
Republican votes," says Merkley. "It was starting to look

pretty good."
But that very fact that the Merkley-Levin amendment had
such momentum is ultimately what did it in. "What killed
us," says Merkley, "was that it was looking pretty good."
What happened next was a prime example of the basic con
of congressional politics. Throughout the debate over
finance reform, Democrats had sold the public on the idea
that it was the Republicans who were killing progressive
initiatives. In reality, Republican and Democratic leaders
were working together with industry insiders and deeppocketed lobbyists to prevent rogue members like Merkley
and Levin from efecting real change. In public, the parties
stage a show of bitter bipartisan stalemate. But when the
cameras are of, they fuck like crazed weasels in heat.
With Merkley-Levin looking like a good bet to pass, the
Republicans pulled a dual-suicide maneuver. Brownback
withdrew his auto-dealer exemption, which instantly killed
the ban on prop trading. What Merkley and Levin didn't
know was that Brownback had worked out an agreement
with the Democratic leadership to surreptitiously restore
his auto-dealer exemption later on, when the final bill was
reconciled with the House version. In other words,
Democratic leaders had teamed up with Republicans
behind closed doors to double-cross Merkley and Levin.
When the agreement was announced one day before the
Senate vote, Merkley couldn't even make sense of what he
was hearing. "You're sitting there trying to understand
what kind of deal has been struck," he says. "You know
there's something there, but you're not really sure."
Merkley almost objected to the deal, but unable to grasp
that he had been sold out by his own party's leadership, he
hesitated a fatal mistake. The deal to reinstate
Brownback went through, and Merkley's amendment to
rein in Wall Street died.
That might have been the end of the Volcker rule but
soon after, Merkley and Levin made the most of their one
last chance. According to Merkley, he and Levin convinced
Rep. Barney Frank, who was overseeing the House bill, to
reintroduce the amendment in conference talks. The

Volcker rule was alive again but it now began a journey

into a new sort of hell, in which insiders from both parties
chipped away at it until there was almost nothing left.
It started with Senate rookie Scott Brown, who demanded
major changes to Merkley-Levin on behalf of big
Massachusetts banks in exchange for his vote. But Senate
sources I talked to insist that Chris Dodd, the powerful
chair of the Senate Banking Committee, was just using
Brown as a cover to gut the Volcker rule. "It became far
more than accommodating the Massachusetts banks,"
says one high-ranking Senate aide. "It became a ruse for
Treasury trying to get as far as they could, with Dodd's
From the start, Dodd had been opposed to the ban on
proprietary trading. "Hey, I would gladly dump the Volcker
rule," he reportedly told industry lobbyists. "But I can't,
because of the pressure I'm getting from the left." Now,
with Brown pressing for concessions, Dodd agreed to let
Merkley-Levin be spattered with a wave of loopholes. If you
can imagine a 4,000-pound lizard pretending to cower
before a Cub Scout clutching a lollipop, then you've
grasped the basic dynamic of a grizzled legislative titan
like Dodd caving into Brown, the cheery GOP newbie with
the Pez-dispenser face.
First, in what amounted to an open handout to the
financial interests represented by Brown, insurers, mutual
funds and trusts were exempted from the Merkley-Levin
ban. Then, with the floodgates officially open, every
financial company in America was granted a massive
loophole one that allowed them to skirt the ban on risky
gambling by investing a designated percentage of their
holdings in hedge funds and private-equity companies.
The common justification for this loophole, known as the
de minimis exemption, was that banks need it to retain
their "traditional businesses" and remain competitive
against hedge funds. In other words, Congress must allow
banks to act like hedge funds because otherwise they'd be
unable to compete with hedge funds in the hedge-fund
business. With the introduction of the de minimis

exemption, Merkley-Levin went from being an absolute ban

on federally insured banks engaging in high-risk
speculation to a feeble, half-assed restriction that will be
difficult, if not impossible, to enforce.
The driving force behind the exemption was not Scott
Brown, but the Obama administration itself. By all
accounts, Geithner lobbied hard on the issue. "Treasury's
official position went from opposed to supportive," one
aide told reporters. "They may have even overshot
Brown's desires by a bit." Throughout the negotiations
over the bill, in fact, Geithner acted almost like a liaison to
the financial industry, pushing for Wall Street-friendly
changes on everything from bailouts (his initial proposal allowed the White House to unilaterally fork over taxpayer
money to banks in unlimited amounts) to high-risk
investments (he fought to let megabanks hold on to their
derivatives desks).
Geithner went all out for the de minimis exemption; one
Senate aide was told flatly by "those who are in charge of
counting noses" that the proposal was not subject to
negotiation. This was the horse-head-in-the-bed moment
of the Dodd-Frank bill the ofer that couldn't be refused.
"We were told that there needed to be de minimis or there
would be no bill," the aide says.
When Merkley first got the news about the exemption, he
tried to keep it small. "I was hoping to limit it to one
percent" of a company's tangible equity, he says. "The
night before the conference, Geithner was pushing for two
percent. In the end, it got even worse it was three
percent." When Merkley tried to put a specific dollar limit
of $250 million on high-risk gambling, Geithner shot him
down. "He didn't want the sub-cap, and we lost," Merkley
Still, during the last round of negotiations, Merkley and
Levin managed to pare back some of the worst of the
exemptions. In one victory, they eliminated a proposal by
Geithner that would have allowed banks to make unlimited
trades "in facilitation of customer relations" a loophole so

laughably broad that it would cover, in the words of one

Senate aide, "pretty much everything" that banks wanted
to do. By June 25th, when the bill headed to its final
meeting of the conference committee, it looked like
Merkley and Levin would finally get their vote.
But that was before the senator from Wall Street showed
up. In the final hours of negotiations, a congressional
delegation from New York, led by Sen. Chuck Schumer,
decided to take one last run at gutting the Volcker rule. It
was as though someone had sent the scrubs of the court
and called in the varsity. Schumer, a platitudinous
champion of liberal social issues, moonlights as a pillboxhat bellhop to Wall Street on economic matters. The self-aggrandizing New Yorker has not only fought to keep taxes
low on hedge-fund billionaires, he got up onstage with
Goldman Sachs CEO Lloyd Blankfein at a Democratic
fundraiser in 2006 and performed "nostalgic furniture-store
This bears repeating: The person in whose hands America
had placed its hopes for finance reform was someone who
once sang furniture jingles onstage with Lloyd Blankfein.
Now, as the bill headed into final negotiations, the
Schumer coalition suddenly decided that the de minimis
exemption for banks simply wasn't big enough. In a neat
trick, Schumer's crew agreed to keep the exemption at
three percent but they raised the limit dramatically by
making it three percent of something else. Instead of being
pegged to a bank's "tangible equity," the exemption would
now be calculated based on a financial firm's "Tier 1"
capital a far bigger pool of money that includes a bank's
common shares and deferred-tax assets instead of just
preferred shares. In real terms, banks could now put up to
40 percent more into high-risk investments. "It was almost
double what Geithner was talking about the night before,"
says Merkley. "For Bank of America alone, it comes to $6
Schumer himself entered the change in the Senate version
of the bill and then asked the House to sign of on it 15
minutes later. Rep. Paul Kanjorski of Pennsylvania, who had

worked hard on the Volcker rule, tried to get a vote to

block the change. But Barney Frank laid into him. "You had
plenty of time with this," Frank barked. "You knew what
was coming siddown."
Thus the Merkley-Levin across-the-board ban on risky
proprietary trading became a partial ban in which insurers,
mutual funds and trusts are completely exempt, and banks
can still gamble three percent of their holdings. In practice,
it will be up to future regulators to define how that limit
will be calculated and one can only imagine how far
banks like Goldman Sachs will manage to stretch the
loopholes in what's left of the Volcker rule. "It's not a total
nothing burger," sighs one aide. "But, by the end, it didn't
change a whole lot."If the volcker rule was a regulatory
Godzilla threatening to stomp out Wall Street's self-serving
investments, the proposal to shut down derivatives was
nothing short of a planet-smashing asteroid headed
straight at the heart of the financial industry's most
reckless abuses. The key battle involved the so-called
"Lincoln rule," put forward by Sen. Blanche Lincoln of
Arkansas, which would have forced big banks to spin of
their derivatives desks in the same way the Volcker rule
would have forced them to give up proprietary trading.
Banks would have to make a choice: Either forgo access to
the cheap cash of the Federal Reserve, or give up
gambling with dangerous instruments like credit-default
swaps. Banks, in short, would have to go back to making
money the old-fashioned way making smart loans,
underwriting new businesses, earning simple fees on
customer trades. No more leveraged gambling on
whacked-out acid-trip derivatives deals, no more walking
around with torches and taking out fire insurance on other
people's houses, no more running up huge markers on the
taxpayer's dime.
This, obviously, could not be permitted. Thanks to Clintonera deregulation, the market for derivatives is now 100
times larger than the federal budget, and five of the
country's biggest banks control more than 90 percent of

the business. So the leadership of both parties pulled out

all the stops to ensure that the Lincoln rule would be
Swiss-cheesed to death before it ever saw the light of day.
The efort began with an extraordinary scene on the floor
of the Senate one that testifies to the nearly unanimous
respect that senators hold for the human loophole
machine known as Chris Dodd. In late May, the week the
Senate voted on its version of the bill, Dodd came up with
a hastily composed, five-page substitute to the Lincoln rule
that would create a "financial stability" council with the
power to unilaterally kill the rule. Faced with opposition
from members of his own party, Dodd agreed to withdraw
his substitute two days before the Senate vote but given
his track record of legislative maneuvering on behalf of big
banks, his fellow Democrats weren't about to take him at
his word. A group of senators from Dodd's own party
including Maria Cantwell of Washington arranged to stay
on the Senate floor in shifts, ensuring that there would be
someone there to object in case Dodd tried to push his
substitute through during one of those quiet, empty-hall,
C-SPAN moments when no one was looking.
The fact that a group of Democrats had to come up with a
scheme to prevent one of their own leaders from dropping
a roofie in their legislative drinks pretty much sums up the
state of afairs in Congress. "Yeah, that's the way it went
down," says a Senate aide familiar with the Dodd Watch
With Dodd unable to introduce his plan to gut the Lincoln
rule, the measure actually passed in the Senate, to the
extreme surprise of almost everyone on the Hill. This was a
rare example of the Senate leadership not just allowing a
vote on a financial reform guaranteed to cost major
campaign contributors billions of dollars, but actually
passing it.
But the ink was barely dry on the Senate bill before a fullblown mobilization against the Lincoln rule was under way.
Just days after the Senate vote, Barney Frank came out
and voiced opposition to the rule, saying it "goes too far."

He trotted out Wall Street's lame, catchall justification for

unfettered speculation: Banks need derivatives to balance
their portfolios and "hedge their own risk." Not long after,
a group of 43 conservative House Democrats calling
themselves the "New Democrat Coalition" refused to
support the reform bill unless the toughest part of the
Lincoln rule section 716 was gutted. "They were
threatening to vote against the legislation unless
accommodations were made for the banks, and the
biggest accommodation was watering down 716," says
Michael Greenberger, a Clinton-era financial regulator
involved in the talks.
It seemed like every Democrat who mattered was against
716: Dodd, Frank, the New Democrats, the Treasury
department, the influential FDIC chief Sheila Bair, even
Paul Volcker. Schumer and other New Yorkers lobbied
mightily against it, arguing that it would be a drain on the
income of Wall Street banks; New York mayor Michael
Bloomberg traveled to Washington specifically to lobby
against the Lincoln rule. But the crowd had turned against
Wall Street, and the populist scrubs seemed like they were
about to win big.
But then Blanche Lincoln, the captain of the scrubs,
coughed up the ball. Lincoln, who was never considered a
particularly strong advocate of finance reform, had
originally proposed her ban on derivatives the most
radical reform in the entire bill during a re-election
campaign in which she faced a stif populist challenge from
Bill Halter, the lieutenant governor of Arkansas. Rumors
circulated in Washington that Democratic leaders were
cynically holding of on gutting Lincoln's proposal until she
got past Halter in the primary.
If that was the plan, it worked. In early June, only a week
after she defeated Halter in the runof, Lincoln set about
gutting her own rule. First she ofered a broad exemption
for community banks. Then a group of conservative House
Democrats led by Rep. Collin Peterson of Minnesota proposed an even bigger compromise one that would

exempt virtually every type of derivative from federal

oversight. "I was told that Peterson ofered this
compromise and Lincoln quickly accepted it," says
That was the beginning of the end. The new deal allowed
banks to keep their derivatives desks by moving them into
subsidiary units and exempted whole classes of derivatives
from regulation: interest-rate swaps (the culprits in
disasters like Greece and Orange County), foreignexchange swaps (which helped trigger a global crash after
Long Term Capital Management imploded in 1998), cleared
credit-default swaps (a big contributor to the AIG collapse)
and currency swaps (also involved in the Greece mess).
"About 90 percent of the derivatives market was
exempted," says Greenberger.
In the end, this would be the entire list of derivatives that
are subject to the new law: credit-default swaps that have
not been cleared by regulators and swaps involving
commodities other than silver and gold.
Hilariously, even the few new regulations on derivatives
that remained in the bill don't seem to worry Wall Street.
Just a few weeks after Lincoln agreed to gut the measure,
famed JP Morgan executive Blythe Masters, often credited
as one of the inventors of the credit-default swap one
insider calls her "the Darth Vader of the swaps market"
actually sounded psyched about the bill. The new law, she
declared publicly, won't even hurt energy commodities,
one of the few classes of derivatives that Lincoln didn't
"It's not a big change for commodities," Masters said. "It's
fine-tuning more than a material impact." The so-called
reforms, she concluded, "are actually going to be very
beneficial for the industry."
And that, ladies and gentlemen, is what the Obama
administration is touting as the toughest financial reform
since the Great Depression.The systematic gutting of both
the Lincoln rule and the Volcker rule in the final days
before the passage of Dodd-Frank was especially painful,
in part, because so many other crucial reforms that would

have spoken directly to the Big Fraud had already been

whitewashed out of the bill. An amendment mandating the
breakup of too-big-to-fail companies got walloped back in
May, and Congress even rejected a ban on "naked" creditdefault swaps the financial equivalent of selling
somebody a car with crappy brakes and then taking out a
life-insurance policy on the driver.
The few reforms that Congress didn't reject outright it
simply kicked into a series of "study groups" created by
the bill. Along with promised studies on no-brainers like
executive compensation and credit-rating agencies, the bill
even punts on the fundamental question of how much
capital banks should be required to keep on hand as a
hedge against meltdowns, leaving the question to the
Basel banking conferences in Switzerland later this year,
where financial interests from all over the world will gather
to hammer things out in inscrutable backroom
"The next phase of all this the regulatory phase is going
to be supertechnical and complex," says one Senate aide.
"It raises questions about how journalists are going to keep
the public the slightest bit interested. You might as well
just hit the snooze button."
Worst of all, some analysts warn that the failure to rein in
Wall Street makes another meltdown a near-certainty. "Oh,
sure, within a decade," said Johnson, the MIT economist.
"The question: Is it three years or seven years?"
Johnson was part of a panel sponsored by the nonpartisan
Roosevelt Institute including Nobel Prize-winning
economist Joseph Stiglitz and bailout watchdog Elizabeth
Warren that concluded back in March that the reform bill
wouldn't do anything to stop a "doomsday cycle." Too-bigto-fail banks, they said, would continue to borrow money
to take massive risks, pay shareholders and management
bonuses with the proceeds, then stick taxpayers with the
bill when it all goes wrong. "Risk-taking at banks will soon
be larger than ever," the panel warned.
Without the Volcker rule and the Lincoln rule, the final
version of finance reform is like treating the opportunistic

symptoms of AIDS without taking on the virus itself. In a

sense, the failure of Congress to treat the disease is a tacit
admission that it has no strategy for our economy going
forward that doesn't involve continually inflating and
reinflating speculative bubbles. Which sucks, because
what happened to our economy over the past three years,
and is still happening to it now, was not an accident or an
oversight, but a sweeping crime wave unleashed by a
financial industry gone completely over to the dark side.
The bill Congress just passed doesn't go after the criminals
where they live, or even make what they're doing a crime;
all it does is put a baseball bat under the bed and add an
extra lock or two on the doors. It's a hack job, a C-minus
efort. See you at the next financial crisis.
Goldman wasn't alone. The nation's six largest banks all
committed to this balls-out, I drink your milkshake!
strategy of flagrantly gorging themselves as America goes
hungry set aside a whopping $140 billion for executive
compensation last year, a sum only slightly less than the
$164 billion they paid themselves in the pre-crash year of
2007. In a gesture of self-sacrifice, Blankfein himself took a
humiliatingly low bonus of $9 million, less than the 2009
pay of elephantine New York Knicks washout Eddy Curry.
But in reality, not much had changed. "What is the state of
our moral being when Lloyd Blankfein taking a $9 million
bonus is viewed as this great act of contrition, when every
penny of it was a direct transfer from the taxpayer?" asks
Eliot Spitzer, who tried to hold Wall Street accountable
during his own ill-fated stint as governor of New York.
Beyond a few such bleats of outrage, however, the huge
payout was met, by and large, with a collective sigh of
resignation. Because beneath America's populist veneer,
on a more subtle strata of the national psyche, there
remains a strong temptation to not really give a shit. The
rich, after all, have always made way too much money;
what's the diference if some fat cat in New York pockets
$20 million instead of $10 million?
Taibblog: Matt Taibbi on Politics and the Economy

The only reason such apathy exists, however, is because

there's still a widespread misunderstanding of how exactly
Wall Street "earns" its money, with emphasis on the
quotation marks around "earns." The question everyone
should be asking, as one bailout recipient after another
posts massive profits Goldman reported $13.4 billion in
profits last year, after paying out that $16.2 billion in
bonuses and compensation is this: In an economy as
horrible as ours, with every factory town between New
York and Los Angeles looking like those hollowed-out ghost
ships we see on History Channel documentaries like
Shipwrecks of the Great Lakes, where in the hell did Wall
Street's eye-popping profits come from, exactly? Did
Goldman go from bailout city to $13.4 billion in the black
because, as Blankfein suggests, its "performance" was just
that awesome? A year and a half after they were minutes
away from bankruptcy, how are these assholes not only
back on their feet again, but hauling in bonuses at the
same rate they were during the bubble?
The answer to that question is basically twofold: They
raped the taxpayer, and they raped their clients.
Looting Main Street
The bottom line is that banks like Goldman have learned
absolutely nothing from the global economic meltdown. In
fact, they're back conniving and playing speculative long
shots in force only this time with the full financial
support of the U.S. government. In the process, they're
rapidly re-creating the conditions for another crash, with
the same actors once again playing the same crazy games
of financial chicken with the same toxic assets as before.
That's why this bonus business isn't merely a matter of
getting upset about whether or not Lloyd Blankfein buys
himself one tropical island or two on his next birthday. The
reality is that the post-bailout era in which Goldman
thrived has turned out to be a chaotic frenzy of high-stakes
con-artistry, with taxpayers and clients bilked out of
billions using a dizzying array of old-school hustles that,
but for their ponderous complexity, would have fit well in

slick grifter movies like The Sting and Matchstick Men.

There's even a term in con-man lingo for what some of the
banks are doing right now, with all their cosmetic gestures
of scaling back bonuses and giving to charities. In the
grifter world, calming down a mark so he doesn't call the
cops is known as the "Cool Of."
To appreciate how all of these (sometimes brilliant)
schemes work is to understand the diference between
earning money and taking scores, and to realize that the
profits these banks are posting don't so much represent
national growth and recovery, but something closer to the
losses one would report after a theft or a car crash. Many
Americans instinctively understand this to be true but,
much like when your wife does it with your 300-pound
plumber in the kids' playroom, knowing it and actually
watching the whole scene from start to finish are two very
diferent things. In that spirit, a brief history of the best 18
months of grifting this country has ever seen:
By now, most people who have followed the financial crisis
know that the bailout of AIG was actually a bailout of AIG's
"counterparties" the big banks like Goldman to whom
the insurance giant owed billions when it went belly up.
What is less understood is that the bailout of AIG counterparties like Goldman and Socit Gnrale, a French bank,
actually began before the collapse of AIG, before the
Federal Reserve paid them so much as a dollar. Nor is it
understood that these counterparties actually accelerated
the wreck of AIG in what was, ironically, something very
like the old insurance scam known as "Swoop and Squat,"
in which a target car is trapped between two perpetrator
vehicles and wrecked, with the mark in the game being the
target's insurance company in this case, the
This may sound far-fetched, but the financial crisis of 2008
was very much caused by a perverse series of legal
incentives that often made failed investments worth more
than thriving ones. Our economy was like a town where
everyone has juicy insurance policies on their neighbors'

cars and houses. In such a town, the driving will be

suspiciously bad, and there will be a lot of fires.
AIG was the ultimate example of this dynamic. At the
height of the housing boom, Goldman was selling billions
in bundled mortgage-backed securities often toxic crap
of the no-money-down, no-identification-needed variety of
home loan to various institutional suckers like pensions
and insurance companies, who frequently thought they
were buying investment-grade instruments. At the same
time, in a glaring example of the perverse incentives that
existed and still exist, Goldman was also betting against
those same sorts of securities a practice that one
government investigator compared to "selling a car with
faulty brakes and then buying an insurance policy on the
buyer of those cars."
Goldman often "insured" some of this garbage with AIG,
using a virtually unregulated form of pseudo-insurance
called credit-default swaps. Thanks in large part to
deregulation pushed by Bob Rubin, former chairman of
Goldman, and Treasury secretary under Bill Clinton, AIG
wasn't required to actually have the capital to pay of the
deals. As a result, banks like Goldman bought more than
$440 billion worth of this bogus insurance from AIG, a huge
blind bet that the taxpayer ended up having to eat.
Thus, when the housing bubble went crazy, Goldman made
money coming and going. They made money selling the
crap mortgages, and they made money by collecting on
the bogus insurance from AIG when the crap mortgages
Still, the trick for Goldman was: how to collect the
insurance money. As AIG headed into a tailspin that fateful
summer of 2008, it looked like the beleaguered firm wasn't
going to have the money to pay of the bogus insurance.
So Goldman and other banks began demanding that AIG
provide them with cash collateral. In the 15 months
leading up to the collapse of AIG, Goldman received $5.9
billion in collateral. Socit Gnrale, a bank holding lots
of mortgage-backed crap originally underwritten by
Goldman, received $5.5 billion. These collateral demands

squeezing AIG from two sides were the "Swoop and Squat"
that ultimately crashed the firm. "It put the company into a
liquidity crisis," says Eric Dinallo, who was intimately
involved in the AIG bailout as head of the New York State
Insurance Department.
It was a brilliant move. When a company like AIG is about
to die, it isn't supposed to hand over big hunks of assets to
a single creditor like Goldman; it's supposed to equitably
distribute whatever assets it has left among all its
creditors. Had AIG gone bankrupt, Goldman would have
likely lost much of the $5.9 billion that it pocketed as
collateral. "Any bankruptcy court that saw those collateral
payments would have declined that transaction as a
fraudulent conveyance," says Barry Ritholtz, the author of
Bailout Nation. Instead, Goldman and the other
counterparties got their money out in advance putting a
torch to what was left of AIG. Fans of the movie Goodfellas
will recall Henry Hill and Tommy DeVito taking the same
approach to the Bamboo Lounge nightclub they'd been
gouging. Roll the Ray Liotta narration: "Finally, when
there's nothing left, when you can't borrow another buck . .
. you bust the joint out. You light a match."
And why not? After all, according to the terms of the
bailout deal struck when AIG was taken over by the state
in September 2008, Goldman was paid 100 cents on the
dollar on an additional $12.9 billion it was owed by AIG
again, money it almost certainly would not have seen a
fraction of had AIG proceeded to a normal bankruptcy.
Along with the collateral it pocketed, that's $19 billion in
pure cash that Goldman would not have "earned" without
massive state intervention. How's that $13.4 billion in
2009 profits looking now? And that doesn't even include
the direct bailouts of Goldman Sachs and other big banks,
which began in earnest after the collapse of AIG.
In the usual "DollarStore" or "Big Store" scam
popularized in movies like The Sting a huge cast of con
artists is hired to create a whole fake environment into

which the unsuspecting mark walks and gets robbed over

and over again. A warehouse is converted into a makeshift
casino or of-track betting parlor, the fool walks in with
money, leaves without it.
The two key elements to the Dollar Store scam are the
whiz-bang theatrical redecorating job and the fact that
everyone is in on it except the mark. In this case, a pair of
investment banks were dressed up to look like commercial
banks overnight, and it was the taxpayer who walked in
and lost his shirt, confused by the appearance of what
looked like real Federal Reserve officials minding the store.
Less than a week after the AIG bailout, Goldman and
another investment bank, Morgan Stanley, applied for, and
received, federal permission to become bank holding
companies a move that would make them eligible for
much greater federal support. The stock prices of both
firms were cratering, and there was talk that either or both
might go the way of Lehman Brothers, another oncemighty investment bank that just a week earlier had
disappeared from the face of the earth under the weight of
its toxic assets. By law, a five-day waiting period was
required for such a conversion but the two banks got
them overnight, with final approval actually coming only
five days after the AIG bailout.
Why did they need those federal bank charters? This
question is the key to understanding the entire bailout era
because this Dollar Store scam was the big one.
Institutions that were, in reality, high-risk gambling houses
were allowed to masquerade as conservative commercial
banks. As a result of this new designation, they were given
access to a virtually endless tap of "free money" by
unsuspecting taxpayers. The $10 billion that Goldman
received under the better-known TARP bailout was chump
change in comparison to the smorgasbord of direct and
indirect aid it qualified for as a commercial bank.
When Goldman Sachs and Morgan Stanley got their federal
bank charters, they joined Bank of America, Citigroup, J.P.
Morgan Chase and the other banking titans who could go
to the Fed and borrow massive amounts of money at

interest rates that, thanks to the aggressive rate-cutting

policies of Fed chief Ben Bernanke during the crisis, soon
sank to zero percent. The ability to go to the Fed and
borrow big at next to no interest was what saved Goldman,
Morgan Stanley and other banks from death in the fall of
2008. "They had no other way to raise capital at that
moment, meaning they were on the brink of insolvency,"
says Nomi Prins, a former managing director at Goldman
Sachs. "The Fed was the only shot."
In fact, the Fed became not just a source of emergency
borrowing that enabled Goldman and Morgan Stanley to
stave of disaster it became a source of long-term
guaranteed income. Borrowing at zero percent interest,
banks like Goldman now had virtually infinite ways to
make money. In one of the most common maneuvers, they
simply took the money they borrowed from the
government at zero percent and lent it back to the
government by buying Treasury bills that paid interest of
three or four percent. It was basically a license to print
money no diferent than attaching an ATM to the side of
the Federal Reserve.
"You're borrowing at zero, putting it out there at two or
three percent, with hundreds of billions of dollars man,
you can make a lot of money that way," says the manager
of one prominent hedge fund. "It's free money."
Which goes a long way to explaining Goldman's enormous
profits last year. But all that free money was amplified by
another scam:
At one point or another, pretty much everyone who takes
drugs has been burned by this one, also known as the
"Rocks in the Box" scam or, in its more elaborate
variations, the "Jamaican Switch." Someone sells you what
looks like an eightball of coke in a baggie, you get home
and, you dumbass, it's baby powder.
The scam's name comes from the Middle Ages, when some
fool would be sold a bound and gagged pig that he would
see being put into a bag; he'd miss the switch, then get

home and find a tied-up cat in there instead. Hence the

expression "Don't let the cat out of the bag."
The "Pig in the Poke" scam is another key to the entire
bailout era. After the crash of the housing bubble the
largest asset bubble in history the economy was
suddenly flooded with securities backed by failing or nearfailing home loans. In the cleanup phase after that bubble
burst, the whole game was to get taxpayers, clients and
shareholders to buy these worthless cats, but at pig prices.
One of the first times we saw the scam appear was in
September 2008, right around the time that AIG was
imploding. That was when the Fed changed some of its
collateral rules, meaning banks that could once borrow
only against sound collateral, like Treasury bills or AAArated corporate bonds, could now borrow against pretty
much anything including some of the mortgage-backed
sewage that got us into this mess in the first place. In
other words, banks that once had to show a real pig to
borrow from the Fed could now show up with a cat and get
pig money. "All of a sudden, banks were allowed to post
absolute shit to the Fed's balance sheet," says the
manager of the prominent hedge fund.
The Fed spelled it out on September 14th, 2008, when it
changed the collateral rules for one of its first bailout
facilities the Primary Dealer Credit Facility, or PDCF. The
Fed's own write-up described the changes: "With the Fed's
action, all the kinds of collateral then in use . . . including
non-investment-grade securities and equities . . . became
eligible for pledge in the PDCF."
Translation: We now accept cats.
The Pig in the Poke also came into play in April of last year,
when Congress pushed a little-known agency called the
Financial Accounting Standards Board, or FASB, to change
the so-called "mark-to-market" accounting rules. Until this
rule change, banks had to assign a real-market price to all
of their assets. If they had a balance sheet full of securities
they had bought at $3 that were now only worth $1, they
had to figure their year-end accounting using that $1
value. In other words, if you were the dope who bought a

cat instead of a pig, you couldn't invite your shareholders

to a slate of pork dinners come year-end accounting time.
But last April, FASB changed all that. From now on, it
announced, banks could avoid reporting losses on some of
their crappy cat investments simply by declaring that they
would "more likely than not" hold on to them until they
recovered their pig value. In short, the banks didn't even
have to actually hold on to the toxic shit they owned
they just had to sort of promise to hold on to it.
That's why the "profit" numbers of a lot of these banks are
really a joke. In many cases, we have absolutely no idea
how many cats are in their proverbial bag. What they call
"profits" might really be profits, only minus undeclared
millions or billions in losses.
"They're hiding all this stuf from their shareholders," says
Ritholtz, who was disgusted that the banks lobbied for the
rule changes. "Now, suddenly banks that were happy to
mark to market on the way up don't have to mark to
market on the way down."
One of the great innovations of Victor Lustig, the legendary
Depression-era con man who wrote the famous "Ten
Commandments for Con Men," was a thing called the
"Rumanian Box." This was a little machine that a mark
would put a blank piece of paper into, only to see real
currency come out the other side. The brilliant Lustig sold
this Rumanian Box over and over again for vast sums
but he's been outdone by the modern barons of Wall
Street, who managed to get themselves a real Rumanian
How they accomplished this is a story that by itself
highlights the challenge of placing this era in any kind of
historical context of known financial crime. What the banks
did was something that was never and never could have
been thought of before. They took so much money from
the government, and then did so little with it, that the
state was forced to start printing new cash to throw at
them. Even the great Lustig in his wildest, horniest dreams
could never have dreamed up this one.

The setup: By early 2009, the banks had already

replenished themselves with billions if not trillions in
bailout money. It wasn't just the $700 billion in TARP cash,
the free money provided by the Fed, and the untold losses
obscured by accounting tricks. Another new rule allowed
banks to collect interest on the cash they were required by
law to keep in reserve accounts at the Fed meaning the
state was now compensating the banks simply for
guaranteeing their own solvency. And a new federal
operation called the Temporary Liquidity Guarantee
Program let insolvent and near-insolvent banks dispense
with their deservedly ruined credit profiles and borrow on a
clean slate, with FDIC backing. Goldman borrowed $29
billion on the government's good name, J.P. Morgan Chase
$38 billion, and Bank of America $44 billion. "TLGP," says
Prins, the former Goldman manager, "was a big one."
Collectively, all this largesse was worth trillions. The idea
behind the flood of money, from the government's
standpoint, was to spark a national recovery: We refill the
banks' balance sheets, and they, in turn, start to lend
money again, recharging the economy and producing jobs.
"The banks were fast approaching insolvency," says Rep.
Paul Kanjorski, a vocal critic of Wall Street who
nevertheless defends the initial decision to bail out the
banks. "It was vitally important that we recapitalize these
But here's the thing. Despite all these trillions in
government rescues, despite the Fed slashing interest
rates down to nothing and showering the banks with
mountains of guarantees, Goldman and its friends had still
not jump-started lending again by the first quarter of 2009.
That's where those nuclear-powered balls of Lloyd
Blankfein came into play, as Goldman and other banks
basically threatened to pick up their bailout billions and go
home if the government didn't fork over more cash a lot
more. "Even if the Fed could make interest rates negative,
that wouldn't necessarily help," warned Goldman's chief
domestic economist, Jan Hatzius. "We're in a deep

recession mainly because the private sector, for a variety

of reasons, has decided to save a lot more."
Translation: You can lower interest rates all you want, but
we're still not fucking lending the bailout money to anyone
in this economy. Until the government agreed to hand over
even more goodies, the banks opted to join the rest of the
"private sector" and "save" the taxpayer aid they had
received in the form of bonuses and compensation.
The ploy worked. In March of last year, the Fed sharply
expanded a radical new program called quantitative
easing, which efectively operated as a real-live Rumanian
Box. The government put stacks of paper in one side, and
out came $1.2 trillion "real" dollars.
The government used some of that freshly printed money
to prop itself up by purchasing Treasury bonds a
desperation move, since Washington's demand for cash
was so great post-Clusterfuck '08 that even the Chinese
couldn't buy U.S. debt fast enough to keep America afloat.
But the Fed used most of the new cash to buy mortgagebacked securities in an efort to spur home lending
instantly creating a massive market for major banks.
And what did the banks do with the proceeds? Among
other things, they bought Treasury bonds, essentially
lending the money back to the government, at interest.
The money that came out of the magic Rumanian Box
went from the government back to the government, with
Wall Street stepping into the circle just long enough to get
paid. And once quantitative easing ends, as it is scheduled
to do in March, the flow of money for home loans will once
again grind to a halt. The Mortgage Bankers Association
expects the number of new residential mortgages to
plunge by 40 percent this year.
All of that Rumanian box paper was made even more
valuable by running it through the next stage of the grift.
Michael Masters, one of the country's leading experts on
commodities trading, compares this part of the scam to
the poker game in the Bill Murray comedy Stripes. "It's like
that scene where John Candy leans over to the guy who's

new at poker and says, 'Let me see your cards,' then starts
giving him advice," Masters says. "He looks at the hand,
and the guy has bad cards, and he's like, 'Bluf me, come
on! If it were me, I'd bet everything!' That's what it's like.
It's like they're looking at your cards as they give you
In more ways than one can count, the economy in the
bailout era turned into a "Big Mitt," the con man's name
for a rigged poker game. Everybody was indeed looking at
everyone else's cards, in many cases with state sanction.
Only taxpayers and clients were left out of the loop.
At the same time the Fed and the Treasury were making
massive, earthshaking moves like quantitative easing and
TARP, they were also consulting regularly with private
advisory boards that include every major player on Wall
Street. The Treasury Borrowing Advisory Committee has a
J.P. Morgan executive as its chairman and a Goldman
executive as its vice chairman, while the board advising
the Fed includes bankers from Capital One and Bank of
New York Mellon. That means that, in addition to getting
great gobs of free money, the banks were also getting
clear signals about when they were getting that money,
making it possible to position themselves to make the
appropriate investments.
One of the best examples of the banks blatantly gambling,
and winning, on government moves was the Public-Private
Investment Program, or PPIP. In this bizarre scheme cooked
up by goofball-geek Treasury Secretary Tim Geithner, the
government loaned money to hedge funds and other
private investors to buy up the absolutely most toxic
horseshit on the market the same kind of high-risk,
high-yield mortgages that were most responsible for
triggering the financial chain reaction in the fall of 2008.
These satanic deals were the basic currency of the bubble:
Jobless dope fiends bought houses with no money down,
and the big banks wrapped those mortgages into
securities and then sold them of to pensions and other
suckers as investment-grade deals. The whole point of the
PPIP was to get private investors to relieve the banks of

these dangerous assets before they hurt any more

innocent bystanders.
But what did the banks do instead, once they got wind of
the PPIP? They started buying that worthless crap again,
presumably to sell back to the government at inflated
prices! In the third quarter of last year, Goldman, Morgan
Stanley, Citigroup and Bank of America combined to add
$3.36 billion of exactly this horseshit to their balance
This brazen decision to gouge the taxpayer startled even
hardened market observers. According to Michael
Schlachter of the investment firm Wilshire Associates, it
was "absolutely ridiculous" that the banks that were
supposed to be reducing their exposure to these volatile
instruments were instead loading up on them in order to
make a quick buck. "Some of them created this mess," he
said, "and they are making a killing undoing it."
Here's the thing about our current economy. When
Goldman and Morgan Stanley transformed overnight from
investment banks into commercial banks, we were told
this would mean a new era of "significantly tighter
regulations and much closer supervision by bank
examiners," as The New York Times put it the very next
day. In reality, however, the conversion of Goldman and
Morgan Stanley simply completed the dangerous
concentration of power and wealth that began in 1999,
when Congress repealed the Glass-Steagall Act the
Depression-era law that had prevented the merger of
insurance firms, commercial banks and investment
houses. Wall Street and the government became one giant
dope house, where a few major players share valuable
information between conflicted departments the way
junkies share needles.
One of the most common practices is a thing called frontrunning, which is really no diferent from the old "Wire"
con, another scam popularized in The Sting. But instead of

intercepting a telegraph wire in order to bet on racetrack

results ahead of the crowd, what Wall Street does is make
bets ahead of valuable information they obtain in the
course of everyday business.
Say you're working for the commodities desk of a big
investment bank, and a major client a pension fund,
perhaps calls you up and asks you to buy a billion
dollars of oil futures for them. Once you place that huge
order, the price of those futures is almost guaranteed to go
up. If the guy in charge of asset management a few desks
down from you somehow finds out about that, he can
make a fortune for the bank by betting ahead of that client
of yours. The deal would be instantaneous and
undetectable, and it would ofer huge profits. Your own
client would lose money, of course he'd end up paying a
higher price for the oil futures he ordered, because you
would have driven up the price. But that doesn't keep
banks from screwing their own customers in this very way.
The scam is so blatant that Goldman Sachs actually warns
its clients that something along these lines might happen
to them. In the disclosure section at the back of a research
paper the bank issued on January 15th, Goldman advises
clients to buy some dubious high-yield bonds while
admitting that the bank itself may bet against those same
shitty bonds. "Our salespeople, traders and other
professionals may provide oral or written market
commentary or trading strategies to our clients and our
proprietary trading desks that reflect opinions that are
contrary to the opinions expressed in this research," the
disclosure reads. "Our asset-management area, our
proprietary-trading desks and investing businesses may
make investment decisions that are inconsistent with the
recommendations or views expressed in this research."
Banks like Goldman admit this stuf openly, despite the
fact that there are securities laws that require banks to
engage in "fair dealing with customers" and prohibit
analysts from issuing opinions that are at odds with what
they really think. And yet here they are, saying flat-out
that they may be issuing an opinion at odds with what

they really think.

To help them screw their own clients, the major investment
banks employ high-speed computer programs that can
glimpse orders from investors before the deals are
processed and then make trades on behalf of the banks at
speeds of fractions of a second. None of them will admit it,
but everybody knows what this computerized trading
known as "flash trading" really is. "Flash trading is
nothing more than computerized front-running," says the
prominent hedge-fund manager. The SEC voted to ban
flash trading in September, but five months later it has yet
to issue a regulation to put a stop to the practice.
Over the summer, Goldman sufered an embarrassment on
that score when one of its employees, a Russian named
Sergey Aleynikov, allegedly stole the bank's computerized
trading code. In a court proceeding after Aleynikov's
arrest, Assistant U.S. Attorney Joseph Facciponti reported
that "the bank has raised the possibility that there is a
danger that somebody who knew how to use this program
could use it to manipulate markets in unfair ways."
Six months after a federal prosecutor admitted in open
court that the Goldman trading program could be used to
unfairly manipulate markets, the bank released its annual
numbers. Among the notable details was the fact that a
staggering 76 percent of its revenue came from trading,
both for its clients and for its own account. "That is much,
much higher than any other bank," says Prins, the former
Goldman managing director. "If I were a client and I saw
that they were making this much money from trading, I
would question how badly I was getting screwed."
Why big institutional investors like pension funds
continually come to Wall Street to get raped is the milliondollar question that many experienced observers puzzle
over. Goldman's own explanation for this phenomenon is
comedy of the highest order. In testimony before a
government panel in January, Blankfein was confronted
about his firm's practice of betting against the same sorts
of investments it sells to clients. His response: "These are
the professional investors who want this exposure."

In other words, our clients are big boys, so screw 'em if

they're dumb enough to take the sucker bets I'm ofering.
Not many con men are good enough or brazen enough to
con the same victim twice in a row, but the few who try
have a name for this excellent sport: reloading. The usual
way to reload on a repeat victim (called an "addict" in
grifter parlance) is to rope him into trying to get back the
money he just lost. This is exactly what started to happen
late last year.
It's important to remember that the housing bubble itself
was a classic confidence game the Ponzi scheme. The
Ponzi scheme is any scam in which old investors must be
continually paid of with money from new investors to keep
up what appear to be high rates of investment return.
Residential housing was never as valuable as it seemed
during the bubble; the soaring home values were instead a
reflection of a continual upward rush of new investors in
mortgage-backed securities, a rush that finally collapsed in
But by the end of 2009, the unimaginable was happening:
The bubble was re-inflating. A bailout policy that was
designed to help us get out from under the bursting of the
largest asset bubble in history inadvertently produced
exactly the opposite result, as all that government-fueled
capital suddenly began flowing into the most dangerous
and destructive investments all over again. Wall Street was
going for the reload.
A lot of this was the government's own fault, of course. By
slashing interest rates to zero and flooding the market with
money, the Fed was replicating the historic mistake that
Alan Greenspan had made not once, but twice, before the
tech bubble in the early 1990s and before the housing
bubble in the early 2000s. By making sure that
traditionally safe investments like CDs and savings
accounts earned basically nothing, thanks to rock-bottom
interest rates, investors were forced to go elsewhere to

search for moneymaking opportunities.

Now we're in the same situation all over again, only far
worse. Wall Street is flooded with government money, and
interest rates that are not just low but flat are pushing
investors to seek out more "creative" opportunities. (It's
"Greenspan times 10," jokes one hedge-fund trader.) Some
of that money could be put to use on Main Street, of
course, backing the eforts of investment-worthy
entrepreneurs. But that's not what our modern Wall Street
is built to do. "They don't seem to want to lend to small
and medium-sized business," says Rep. Brad Sherman,
who serves on the House Financial Services Committee.
"What they want to invest in is marketable securities. And
the definition of small and medium-sized businesses, for
the most part, is that they don't have marketable
securities. They have bank loans."
In other words, unless you're dealing with the stock of a
major, publicly traded company, or a giant pile of home
mortgages, or the bonds of a large corporation, or a
foreign currency, or oil futures, or some country's debt, or
anything else that can be rapidly traded back and forth in
huge numbers, factory-style, by big banks, you're not
really on Wall Street's radar.
So with small business out of the picture, and the safe stuf
not worth looking at thanks to the Fed's low interest rates,
where did Wall Street go? Right back into the shit that got
us here.
One trader, who asked not to be identified, recounts a
story of what happened with his hedge fund this past fall.
His firm wanted to short that is, bet against all the
crap toxic bonds that were suddenly in vogue again. The
fund's analysts had examined the fundamentals of these
instruments and concluded that they were absolutely not
good investments.
So they took a short position. One month passed, and they
lost money. Another month passed same thing. Finally,
the trader just shrugged and decided to change course
and buy.
"I said, 'Fuck it, let's make some money,'" he recalls. "I

absolutely did not believe in the fundamentals of any of

this stuf. However, I can get on the bandwagon, just so
long as I know when to jump out of the car before it goes
of the damn clif!"
This is the very definition of bubble economics betting
on crowd behavior instead of on fundamentals. It's old
investors betting on the arrival of new ones, with the value
of the underlying thing itself being irrelevant. And this
behavior is being driven, no surprise, by the biggest firms
on Wall Street.
The research report published by Goldman Sachs on
January 15th underlines this sort of thinking. Goldman
issued a strong recommendation to buy exactly the sort of
high-yield toxic crap our hedge-fund guy was, by then,
driving rapidly toward the clif. "Summarizing our views,"
the bank wrote, "we expect robust flows . . . to dominate
fundamentals." In other words: This stuf is crap, but
everyone's buying it in an awfully robust way, so you
should too. Just like tech stocks in 1999, and mortgagebacked securities in 2006.
To sum up, this is what Lloyd Blankfein meant by
"performance": Take massive sums of money from the
government, sit on it until the government starts printing
trillions of dollars in a desperate attempt to restart the
economy, buy even more toxic assets to sell back to the
government at inflated prices and then, when all else
fails, start driving us all toward the clif again with a frank
and open endorsement of bubble economics. I mean, shit
who wouldn't deserve billions in bonuses for doing all
Con artists have a word for the inability of their victims to
accept that they've been scammed. They call it the "True
Believer Syndrome." That's sort of where we are, in a state
of nagging disbelief about the real problem on Wall Street.
It isn't so much that we have inadequate rules or
incompetent regulators, although both of these things are
certainly true. The real problem is that it doesn't matter
what regulations are in place if the people running the
economy are rip-of artists. The system assumes a certain

minimum level of ethical behavior and civic instinct over

and above what is spelled out by the regulations. If those
ethics are absent well, this thing isn't going to work, no
matter what we do. Sure, mugging old ladies is against the
law, but it's also easy. To prevent it, we depend, for the
most part, not on cops but on people making the conscious
decision not to do it.
That's why the biggest gift the bankers got in the bailout
was not fiscal but psychological. "The most valuable part
of the bailout," says Rep. Sherman, "was the implicit
guarantee that they're Too Big to Fail." Instead of
liquidating and prosecuting the insolvent institutions that
took us all down with them in a giant Ponzi scheme, we
have showered them with money and guarantees and all
sorts of other enabling gestures. And what should really
freak everyone out is the fact that Wall Street immediately
started skimming of its own rescue money. If the bailouts
validated anew the crooked psychology of the bubble, the
recent profit and bonus numbers show that the same
psychology is back, thriving, and looking for new disasters
to create. "It's evidence," says Rep. Kanjorski, "that they
still don't get it."
More to the point, the fact that we haven't done much of
anything to change the rules and behavior of Wall Street
shows that we still don't get it. Instituting a bailout policy
that stressed recapitalizing bad banks was like the addict
coming back to the con man to get his lost money back.
Ask yourself how well that ever works out. And then get
ready for the reload.
As public services in and around Birmingham were
stripped to the bone, Pack struggled to support her family
on a weekly unemployment check of $260. Nearly a fourth
of that went to pay for her health insurance, which the
county no longer covered. She also fielded calls from laidof co-workers who had it even tougher. "I'd be on the
phone sometimes until two in the morning," she says. "I
had to talk more than one person out of suicide. For some
of the men supporting families, it was so hard

foreclosure, bankruptcy. I'd go to bed at night, and I'd be in

This article appeared in the April 15, 2010 issue of Rolling
Stone. The issue is available in the online archive.
Homes stood empty, businesses were boarded up, and
parts of already-blighted Birmingham began to take on the
feel of a ghost town. There were also a few bills that were
unique to the area like the $64 sewer bill that Pack and
her family paid each month. "Yeah, it went up about 400
percent just over the past few years," she says.
Wall Street's Naked Swindle
The sewer bill, in fact, is what cost Pack and her coworkers their jobs. In 1996, the average monthly sewer bill
for a family of four in Birmingham was only $14.71 but
that was before the county decided to build an elaborate
new sewer system with the help of out-of-state financial
wizards with names like Bear Stearns, Lehman Brothers,
Goldman Sachs and JP Morgan Chase. The result was a
monstrous pile of borrowed money that the county used to
build, in essence, the world's grandest toilet "the Taj
Mahal of sewer-treatment plants" is how one county
worker put it. What happened here in Jeferson County
would turn out to be the perfect metaphor for the peculiar
alchemy of modern oligarchical capitalism: A mob of
corrupt local officials and morally absent financiers got
together to build a giant device that converted human shit
into billions of dollars of profit for Wall Street and misery
for people like Lisa Pack.
Invasion of the Home Snatchers
And once the giant shit machine was built and the note on
all that fancy construction started to come due, Wall Street
came back to the local politicians and doubled down on
the scam. They showed up in droves to help the poor,
broke citizens of Jeferson County cut their toilet finance
charges using a blizzard of incomprehensible swaps and
refinance schemes schemes that only served to
postpone the repayment date a year or two while sinking

the county deeper into debt. In the end, every time

Jeferson County so much as breathed near one of the
banks, it got charged millions in fees. There was so much
money to be made bilking these dizzy Southerners that
banks like JP Morgan spent millions paying middlemen who
bribed yes, that's right, bribed, criminally bribed the
county commissioners and their buddies just to keep their
business. Hell, the money was so good, JP Morgan at one
point even paid Goldman Sachs $3 million just to back the
fuck of, so they could have the rubes of Jeferson County
to fleece all for themselves.
Birmingham became the poster child for a new kind of
giant-scale financial fraud, one that would threaten the
financial stability not only of cities and counties all across
America, but even those of entire countries like Greece.
While for many Americans the financial crisis remains an
abstraction, a confusing mess of complex transactions that
took place on a cloud high above Manhattan sometime in
the mid-2000s, in Jeferson County you can actually see
the rank criminality of the crisis economy with your own
eyes; the monster sticks his head all the way out of the
water. Here you can see a trail that leads directly from a
billion-dollar predatory swap deal cooked up at the highest
levels of America's biggest banks, across a vast fruited
plain of bribes and felonies "the price of doing
business," as one JP Morgan banker says on tape all the
way down to Lisa Pack's sewer bill and the mass layofs in
Once you follow that trail and understand what took place
in Jeferson County, there's really no room left for illusions.
We live in a gangster state, and our days of laughing at
other countries are over. It's our turn to get laughed at. In
Birmingham, lots of people have gone to jail for the crime:
More than 20 local officials and businessmen have been
convicted of corruption in federal court. Last October, right
around the time that Lisa Pack went back to work at
reduced hours, Birmingham's mayor was convicted of
fraud and money-laundering for taking bribes funneled to
him by Wall Street bankers everything from Rolex

watches to Ferragamo suits to cash. But those who

greenlighted the bribes and profited most from the scam
remain largely untouched. "It never gets back to JP
Morgan," says Pack.
If you want to get all Glenn Beck about it, you could lay the
blame for this entire mess at the feet of weepy, treehugging environmentalists. It all started with the Cahaba
River, the longest free-flowing river in the state of
Alabama. The tributary, which winds its way through
Birmingham before turning diagonally to empty out near
Selma, is home to more types of fish per mile than any
other river in America and shelters 64 rare and imperiled
species of plants and animals. It's also the source of one of
the worst municipal financial disasters in American history.
Back in the early 1990s, the county's sewer system was so
antiquated that it was leaking raw sewage directly into the
Cahaba, which also supplies the area with its drinking
water. Joined by well intentioned citizens from the
Cahaba River Society, the EPA sued the county to force it
to comply with the Clean Water Act. In 1996, county
commissioners signed a now-infamous consent decree
agreeing not just to fix the leaky pipes but to eliminate all
sewer overflows a near-impossible standard that
required the county to build the most elaborate,
ecofriendly, expensive sewer system in the history of the
universe. It was like ordering a small town in Florida that
gets a snowstorm once every five years to build a billiondollar fleet of snowplows.
The original cost estimates for the new sewer system were
as low as $250 million. But in a wondrous demonstration of
the possibilities of small-town graft and contract-padding,
the price tag quickly swelled to more than $3 billion.
County commissioners were literally pocketing wads of
cash from builders and engineers and other contractors
eager to get in on the project, while the county was forced
to borrow obscene sums to pay for the rapidly spiraling
costs. Jeferson County, in efect, became one giant, TVstealing, unemployed drug addict who borrowed a million

dollars to buy the mother of all McMansions and just as

it did during the housing bubble, Wall Street made a
business of keeping the crook in his house. As one county
commissioner put it, "We're like a guy making $50,000 a
year with a million-dollar mortgage."
To reassure lenders that the county would pay its
mortgage, commissioners gave the finance director an
unelected official appointed by the president of the
commission the power to automatically raise sewer
rates to meet payments on the debt. The move brought in
billions in financing, but it also painted commissioners into
a corner. If costs continued to rise and with practically
every contractor in Alabama sticking his fingers on the
scale, they were rising fast officials would be faced with
automatic rate increases that would piss of their voters.
(By 2003, annual interest on the sewer deal had reached
$90 million.) So the commission reached out to Wall Street,
looking for creative financing tools that would allow it to
reduce the county's staggering debt payments.
Wall Street was happy to help. First, it employed the same
trick it used to fuel the housing crisis: It switched the
county from a fixed rate on the bonds it had issued to
finance the sewer deal to an adjustable rate. The
refinancing meant lower interest payments for a couple of
years followed by the risk of even larger payments down
the road. The move enabled county commissioners to
postpone the problem for an election season or two,
kicking it to a group of future commissioners who would
inevitably have to pay the real freight.
But then Wall Street got really creative. Having switched
the county to a variable interest rate, it ofered
commissioners a crazy deal: For an extra fee, the banks
said, we'll allow you to keep paying a fixed rate on your
debt to us. In return, we'll give you a variable amount each
month that you can use to pay of all that variable-rate
interest you owe to bondholders.
In financial terms, this is known as a synthetic rate swap
the spidery creature you might have read about playing a
role in bringing down places like Greece and Milan. On

paper, it made sense: The county got the stability of a

fixed rate, while paying Wall Street to assume the risk of
the variable rates on its bonds. That's the synthetic part.
The trouble lies in the rate swap. The deal only works if the
two variable rates the one you get from the bank, and
the one you owe to bondholders actually match. It's like
gambling on the weather. If your bondholders are
expecting you to pay an interest rate based on the
average temperature in Alabama, you don't do a rate swap
with a bank that gives you back a rate pegged to the
temperature in Nome, Alaska.
Not unless you're a fucking moron. Or your banker is JP
In a small office in a federal building in downtown
Birmingham, just blocks from where civil rights
demonstrators shut down the city in 1963, Assistant U.S.
Attorney George Martin points out the window. He's
pointing in the direction of the Tutwiler Hotel, once home
to one of the grandest ballrooms in the South but now part
of the Hampton Inn chain.
"It was right around the corner here, at the hotel," Martin
says. "That's where they met that's where this all
They means Charles LeCroy and Bill Blount, the two
principals in what would become the most important of all
the corruption cases in Jeferson County. LeCroy was a
banker for JP Morgan, serving as managing director of the
bank's southeast regional office. Blount was an Alabama
wheeler-dealer with close friends on the county
commission. For years, when Wall Street banks wanted to
do business with municipalities, whether for bond issues or
rate swaps, it was standard practice to reach out to a local
sleazeball like Blount and pay him a shitload of money to
help seal the deal. "Banks would pay some local
consultant, and the consultant would then funnel money to
the politician making the decision," says Christopher
Taylor, the former head of the board that regulates
municipal borrowing. Back in the 1990s, Taylor pushed

through a ban on such backdoor bribery. He also passed a

ban on bankers contributing directly to politicians they do
business with a move that sparked a lawsuit by one
aggrieved sleazeball, who argued that halting such
legalized graft violated his First Amendment rights. The
name of that pissed-of banker? "It was the one and only
Bill Blount," Taylor says with a laugh.
Blount is a stocky, stubby-fingered Southerner with glasses
and a pale, pinched face if Norman Rockwell had ever
done a painting titled "Small-Town Accountant Taking
Enormous Dump," it would look just like Blount. LeCroy, his
sugar daddy at JP Morgan, is a tall, bloodless, crisply
dressed corporate operator with a shiny bald head and
silver side patches a cross between Skeletor and
Michael Stipe.
The scheme they operated went something like this:
LeCroy paid Blount millions of dollars, and Blount turned
around and used the money to buy lavish gifts for his close
friend Larry Langford, the now-convicted Birmingham
mayor who at the time had just been elected president of
the county commission. (At one point Blount took Langford
on a shopping spree in New York, putting $3,290 worth of
clothes from Zegna on his credit card.) Langford then
signed of on one after another of the deadly swap deals
being pushed by LeCroy. Every time the county refinanced
its sewer debt, JP Morgan made millions of dollars in fees.
Even more lucrative, each of the swap contracts contained
clauses that mandated all sorts of penalties and payments
in the event that something went wrong with the deal. In
the mortgage business, this process is known as churning:
You keep coming back over and over to refinance, and
they keep "churning" you for more and more fees. "The
transactions were complex, but the scheme was simple,"
said Robert Khuzami, director of enforcement for the SEC.
"Senior JP Morgan bankers made unlawful payments to win
business and earn fees."
Given the shitload of money to be made on the refinancing
deals, JP Morgan was prepared to pay whatever it took to
buy of officials in Jeferson County. In 2002, during a

conversation recorded in Nixonian fashion by JP Morgan

itself, LeCroy bragged that he had agreed to funnel payof
money to a pair of local companies to secure the votes of
two county commissioners. "Look," the commissioners told
him, "if we support the synthetic refunding, you guys have
to take care of our two firms." LeCroy didn't blink.
"Whatever you want," he told them. "If that's what you
need, that's what you get. Just tell us how much."
Just tell us how much. That sums up the approach that JP
Morgan took a few months later, when Langford
announced that his good buddy Bill Blount would
henceforth be involved with every financing transaction for
Jeferson County. From JP Morgan's point of view, the
decision to pay of Blount was a no-brainer. But the bank
had one small problem: Goldman Sachs had already
crawled up Blount's trouser leg, and the broker was
advising Langford to pick them as Jeferson County's
investment bank.
The solution they came up with was an extraordinary one:
JP Morgan cut a separate deal with Goldman, paying the
bank $3 million to fuck of, with Blount taking a $300,000
cut of the side deal. Suddenly Goldman was out and JP
Morgan was sitting in Langford's lap. In another
conversation caught on tape, LeCroy joked that the deal
was his "philanthropic work," since the payof amounted to
a "charitable donation to Goldman Sachs" in return for
"taking no risk."
That such a blatant violation of anti-trust laws took place
and neither JP Morgan nor Goldman have been prosecuted
for it is yet another mystery of the current financial crisis.
"This is an open-and-shut case of anti-competitive
behavior," says Taylor, the former regulator.
With Goldman out of the way, JP Morgan won the right to
do a $1.1 billion bond ofering switching Jeferson
County out of fixed-rate debt into variable-rate debt and
also did a corresponding $1.1 billion deal for a synthetic
rate swap. The very same day the transaction was
concluded, in May 2003, LeCroy had dinner with Langford

and struck a deal to do yet another bond-and-swap

transaction of roughly the same size. This time, the terms
of the payof were spelled out more explicitly. In a hilarious
phone call between LeCroy and Douglas MacFaddin,
another JP Morgan official, the two bankers groaned aloud
about how much it was going to cost to satisfy Blount:
LeCroy: I said, "Commissioner Langford, I'll do that
because that's your suggestion, but you gotta help us keep
him under control. Because when you give that guy a
hand, he takes your arm." You know?
MacFaddin: [Laughing] Yeah, you end up in the woodchipper.
All told, JP Morgan ended up paying Blount nearly $3
million for "performing no known services," in the words of
the SEC. In at least one of the deals, Blount made upward
of 15 percent of JP Morgan's entire fee. When I ask Taylor
what a legitimate consultant might earn in such a
circumstance, he laughs. "What's a 'legitimate consultant'
in a case like this? He made this money for doing jack
As the tapes of LeCroy's calls show, even officials at JP
Morgan were incredulous at the money being funneled to
Blount. "How does he get 15 percent?" one associate at
the bank asks LeCroy. "For doing what? For not messing
with us?"
"Not messing with us," LeCroy agrees. "It's a lot of money,
but in the end, it's worth it on a billion-dollar deal."
That's putting it mildly: The deals wound up being the
largest swap agreements in JP Morgan's history. Making
matters worse, the payofs didn't even wind up costing the
bank a dime. As the SEC explained in a statement on the
scam, JP Morgan "passed on the cost of the unlawful
payments by charging the county higher interest rates on
the swap transactions." In other words, not only did the
bank bribe local politicians to take the sucky deal, they got
local taxpayers to pay for the bribes. And because
Jeferson County had no idea what kind of deal it was

getting on the swaps, JP Morgan could basically charge

whatever it wanted. According to an analysis of the swap
deals commissioned by the county in 2007, taxpayers had
been overcharged at least $93 million on the transactions.
JP Morgan was far from alone in the scam: Virtually
everyone doing business in Jeferson County was on the
take. Four of the nation's top investment banks, the very
cream of American finance, were involved in one way or
another with payofs to Blount in their scramble to do
business with the county. In addition to JP Morgan and
Goldman Sachs, Bear Stearns paid Langford's bagman
$2.4 million, while Lehman Brothers got of cheap with a
$35,000 "arranger's fee." At least a dozen of the county's
contractors were also cashing in, along with many of the
county commissioners. "If you go into the county
courthouse," says Michael Morrison, a planner who works
for the county, "there's a gallery of past commissioners on
the wall. On the top row, every single one of 'em but two
has been investigated, indicted or convicted. It's a joke."
The crazy thing is that such arrangements where some
local scoundrel gets a massive fee for doing nothing but
greasing the wheels with elected officials have been
taking place all over the country. In Illinois, during the
Upper Volta-esque era of Rod Blagojevich, a Republican
political consultant named Robert Kjellander got 10
percent of the entire fee Bear Stearns earned doing a bond
sale for the state pension fund. At the start of Obama's
term, Bill Richardson's Cabinet appointment was derailed
for a similar scheme when he was governor of New Mexico.
Indeed, one reason that officials in Jeferson County didn't
know that the swaps they were signing of on were shitty
was because their adviser on the deals was a firm called
CDR Financial Products, which is now accused of conspiring
to overcharge dozens of cities in swap transactions.
According to a federal antitrust lawsuit, CDR is basically a
big-league version of Bill Blount banks tossed money at
the firm, which in turn advised local politicians that they
were getting a good deal. "It was basically, you pay CDR,
and CDR helps push the deal through," says Taylor.

In the end, though, all this bribery and graft was just the
table-setter for the real disaster. In taking all those bribes
and signing on to all those swaps, the commissioners in
Jeferson County had basically started the clock on a
financial time bomb that, sooner or later, had to explode.
By continually refinancing to keep the county in its giant
McMansion, the commission had managed to push into the
future that inevitable day when the real bill would arrive in
the mail. But that's where the mortgage analogy ends
because in one key area, a swap deal difers from a home
mortgage. Imagine a mortgage that you have to keep on
paying even after you sell your house. That's basically how
a swap deal works. And Jeferson County had done 23 of
them. At one point, they had more outstanding swaps than
New York City.
Judgment Day was coming just like it was for the
Delaware River Port Authority, the Pennsylvania school
system, the cities of Detroit, Chicago, Oakland and Los
Angeles, the states of Connecticut and Mississippi, the city
of Milan and nearly 500 other municipalities in Italy, the
country of Greece, and God knows who else. All of these
places are now reeling under the weight of similarly
elaborate and ill-advised swaps and if what happened in
Jeferson County is any guide, hoo boy. Because when the
shit hit the fan in Birmingham, it really hit the fan.
For Jeferson County, the deal blew up in early 2008, when
a dizzying array of penalties and other fine-print poison
worked into the swap contracts started to kick in. The
trouble began with the housing crash, which took down the
insurance companies that had underwritten the county's
bonds. That rendered the county's insurance worthless,
triggering clauses in its swap contracts that required it to
pay of more than $800 million of its debt in only four
years, rather than 40. That, in turn, scared of private
lenders, who were no longer interested in bidding on the
county's bonds. The banks were forced to make up the
diference a service for which they charged enormous
penalties. It was as if the county had missed a payment on

its credit card and woke up the next morning to find its
annual percentage rate jacked up to a million percent.
Between 2008 and 2009, the annual payment on Jeferson
County's debt jumped from $53 million to a whopping
$636 million.
It gets worse. Remember the swap deal that Jeferson
County did with JP Morgan, how the variable rates it got
from the bank were supposed to match those it owed its
bondholders? Well, they didn't. Most of the payments the
county was receiving from JP Morgan were based on one
set of interest rates (the London Interbank Exchange Rate),
while the payments it owed to its bondholders followed a
diferent set of rates (a municipal-bond index). Jeferson
County was suddenly getting far less from JP Morgan, and
owing tons more to bondholders. In other words, the bank
and Bill Blount made tens of millions of dollars selling
deals to local politicians that were not only completely
defective, but blew the entire county to smithereens.
And here's the kicker. Last year, when Jeferson County,
staggered by the weight of its penalties, was unable to
make its swap payments to JP Morgan, the bank canceled
the deal. That triggered one-time "termination fees" of
yes, you read this right $647 million. That was money
the county would owe no matter what happened with the
rest of its debt, even if bondholders decided to forgive and
forget every dime the county had borrowed. It was like the
herpes simplex of loans debt that does not go away,
ever, for as long as you live. On a sewer project that was
originally supposed to cost $250 million, the county now
owed a total of $1.28 billion just in interest and fees on the
debt. Imagine paying $250,000 a year on a car you
purchased for $50,000, and that's roughly where Jeferson
County stood at the end of last year.
Last November, the SEC charged JP Morgan with fraud and
canceled the $647 million in termination fees. The bank
agreed to pay a $25 million fine and fork over $50 million
to assist displaced workers in Jeferson County. So far, the
county has managed to avoid bankruptcy, but the sewer
fiasco had downgraded its credit rating, triggering

payments on other outstanding loans and pushing

Birmingham toward the status of an African debtor state.
For the next generation, the county will be in a constant
fight to collect enough taxes just to pay of its debt, which
now totals $4,800 per resident.
The city of Birmingham was founded in 1871, at the dawn
of the Southern industrial boom, for the express purpose of
attracting Northern capital it was even named after a
famous British steel town to burnish its entrepreneurial
cred. There's a gruesome irony in it now lying sacked and
looted by financial vandals from the North. The destruction
of Jeferson County reveals the basic battle plan of these
modern barbarians, the way that banks like JP Morgan and
Goldman Sachs have systematically set out to pillage
towns and cities from Pittsburgh to Athens. These guys
aren't number-crunching whizzes making smart
investments; what they do is find suckers in some
municipal-finance department, corner them in complex
lose-lose deals and flay them alive. In a complete
subversion of free-market principles, they take no risk,
score deals based on political influence rather than
competition, keep consumers in the dark and walk away
with big money. "It's not high finance," says Taylor, the
former bond regulator. "It's low finance." And even if the
regulators manage to catch up with them billions of dollars
later, the banks just pay a small fine and move on to the
next scam. This isn't capitalism. It's nomadic thievery.

The rocket docket wasn't created to investigate any of

that. It exists to launder the crime and bury the evidence
by speeding thousands of fraudulent and predatory loans
to the ends of their life cycles, so that the houses attached
to them can be sold again with clean paperwork. The
judges, in fact, openly admit that their primary mission is
not justice but speed. One Jacksonville judge, the
Honorable A.C. Soud, even told a local newspaper that his

goal is to resolve 25 cases per hour. Given the way the

system is rigged, that means His Honor could well be
throwing one ass on the street every 2.4 minutes.
This article appeared in the November 25, 2010 issue of
Rolling Stone. The issue is available in the online archive.
Foreclosure lawyers told me one other thing about the
rocket docket. The hearings, they said, aren't exactly
public. "The judges might give you a hard time about
watching," one lawyer warned. "They're not exactly
anxious for people to know about this stuf." Inwardly, I
laughed at this it sounded like typical activist paranoia.
The notion that a judge would try to prevent any citizen,
much less a member of the media, from watching an open
civil hearing sounded ridiculous. Fucked-up as everyone
knows the state of Florida is, it couldn't be that bad. It isn't
Indonesia. Right?
Exclusive Excerpt: America on Sale, From Matt Taibbi's
Well, not quite. When I went to sit in on Judge Soud's
courtroom in downtown Jacksonville, I was treated to an
intimate, and at times breathtaking, education in the
horror of the foreclosure crisis, which is rapidly emerging
as the even scarier sequel to the financial meltdown of
2008: Invasion of the Home Snatchers II. In Las Vegas, one
in 25 homes is now in foreclosure. In Fort Myers, Florida,
one in 35. In September, lenders nationwide took over a
record 102,134 properties; that same month, more than a
third of all home sales were distressed properties. All told,
some 820,000 Americans have already lost their homes
this year, and another 1 million currently face foreclosure.
Matt Taibbi: The Crying Shame of John Boehner
Throughout the mounting catastrophe, however, many
Americans have been slow to comprehend the true nature
of the mortgage disaster. They seemed to have grasped
just two things about the crisis: One, a lot of people are
getting their houses foreclosed on. Two, some of the banks
doing the foreclosing seem to have misplaced their

For most people, the former bit about homeowners not

paying their damn bills is the important part, while the
latter, about the sudden and strange inability of the
world's biggest and wealthiest banks to keep proper
records, is incidental. Just a little office sloppiness, and
who cares? Those deadbeat homeowners still owe the
money, right? "They had it coming to them," is how a
bartender at the Jacksonville airport put it to me.
But in reality, it's the unpaid bills that are incidental and
the lost paperwork that matters. It turns out that
underneath that little iceberg tip of exposed evidence lies
a fraud so gigantic that it literally cannot be contemplated
by our leaders, for fear of admitting that our entire
financial system is corrupted to its core with our great
banks and even our government cofers backed not by real
wealth but by vast landfills of deceptively generated and
essentially worthless mortgage-backed assets.
You've heard of Too Big to Fail the foreclosure crisis is
Too Big for Fraud. Think of the Bernie Madof scam, only
replicated tens of thousands of times over, infecting every
corner of the financial universe. The underlying crime is so
pervasive, we simply can't admit to it and so we are
working feverishly to rubber-stamp the problem away, in
sordid little backrooms in cities like Jacksonville, behind
doors that shouldn't be, but often are, closed.
And that's just the economic side of the story. The moral
angle to the foreclosure crisis and, of course, in
capitalism we're not supposed to be concerned with the
moral stuf, but let's mention it anyway shows a culture
that is slowly giving in to a futuristic nightmare ideology of
computerized greed and unchecked financial violence. The
monster in the foreclosure crisis has no face and no brain.
The mortgages that are being foreclosed upon have no
real owners. The lawyers bringing the cases to evict the
humans have no real clients. It is complete and absolute
legal and economic chaos. No single limb of this vast
man-eating thing knows what the other is doing, which
makes it nearly impossible to combat and scary as hell
to watch.

What follows is an account of a single hour of Judge A.C.

Soud's rocket docket in Jacksonville. Like everything else
related to the modern economy, these foreclosure
hearings are conducted in what is essentially a foreign
language, heavy on jargon and impenetrable to the casual
observer. It took days of interviews with experts before
and after this hearing to make sense of this single hour of
courtroom drama. And though the permutations of smalltime scammery and grift in the foreclosure world are
virtually endless your average foreclosure case involves
homeowners or investors being screwed at least five or six
creative ways a single hour of court and a few cases is
enough to tell the main story. Because if you see one of
these scams, you see them all.
It's early on a sunny Tuesday morning when I arrive at the
chambers of Judge Soud, one of four rotating judges who
preside over the local rocket docket. These special
foreclosure courts were established in July of this year,
after the state of Florida budgeted $9.6 million to create a
new court with a specific mandate to clear 62 percent of
the foreclosure cases that were clogging up the system.
Rather than forcing active judges to hear thousands of
individual cases, this strategy relies on retired judges who
take turns churning through dozens of cases every
morning, with little time to pay much attention to the
What passes for a foreclosure court in Jacksonville is
actually a small conference room at the end of a hall on
the fifth floor of the drab brick Duval County Courthouse.
The space would just about fit a fridge and a pingpong
table. At the head of a modest conference table this
morning sits Judge Soud, a small and fussy-looking man
who reminds me vaguely of the actor Ben Gazzara.
On one side of the table sits James Kowalski, a former
homicide prosecutor who is now defending homeowners. A
stern man with a shaved head and a laconic manner of
speaking, Kowalski has helped pioneer a whole new
approach to the housing mess, slowing down the mindless

eviction machine by deposing the scores of "robo-signers"

being hired by the banks to sign phony foreclosure
affidavits by the thousands. For his work on behalf of the
dispossessed, Kowalski was recently profiled in a
preposterous Wall Street Journal article that blamed
attorneys like him for causing the foreclosure mess with
their nuisance defense claims. The headline: "Niche
Lawyers Spawned Housing Fracas."
On the other side of the table are the plaintif's attorneys,
the guys who represent the banks. On this level of the
game, these lawyers refer to themselves as "bench
warmers" volume stand-ins subcontracted by the big,
hired-killer law firms that work for the banks. One of the
bench warmers present today is Mark Kessler, who works
for a number of lenders and giant "foreclosure mills,"
including the one run by David J. Stern, a gazillionaire
attorney and all-Universe asshole who last year tried to
foreclose on 70,382 homeowners. Which is a nice way to
make a living, considering that Stern and his wife, Jeanine,
have bought nearly $60 million in property for themselves
in recent years, including a 9,273-square-foot manse in
Fort Lauderdale that is part of a Ritz-Carlton complex.
Kessler is a harried, middle-aged man in glasses who
spends the morning perpetually fighting to organize a
towering stack of folders, each one representing a soon-tobe-homeless human being. It quickly becomes apparent
that Kessler is barely acquainted with the names in the
files, much less the details of each case. "A lot of these
guys won't even get the folders until right before the
hearing," says Kowalski.
When I arrive, Judge Soud and the lawyers are already
arguing a foreclosure case; at a break in the action, I slip
into the chamber with a legal-aid attorney who's
accompanying me and sit down. The judge eyes me
anxiously, then proceeds. He clears his throat, and then
it's ready, set, fraud!
Judge Soud seems to have no clue that the files he is
processing at a breakneck pace are stufed with fraudulent
claims and outright lies. "We have not encountered any

fraud yet," he recently told a local newspaper. "If we

encountered fraud, it would go to [the state attorney], I
can tell you that." But the very first case I see in his court
is riddled with fraud.
Kowalski has seen hundreds of cases like the one he's
presenting this morning. It started back in 2006, when he
went to Pennsylvania to conduct what he thought would be
a routine deposition of an official at the lending giant
GMAC. What he discovered was that the official who had
sworn to having personal knowledge of the case was, in
fact, just a "robo-signer" who had signed of on the file
without knowing anything about the actual homeowner or
his payment history. (Kowalski's clients, like most of the
homeowners he represents, were actually making their
payments on time; in this particular case, a check had
been mistakenly refused by GMAC.) Following the
evidence, Kowalski discovered what has turned out to be a
systemwide collapse of the process for documenting
mortgages in this country.
If you're foreclosing on somebody's house, you are
required by law to have a collection of paperwork showing
the journey of that mortgage note from the moment of
issuance to the present. You should see the originating
lender (a firm like Countrywide) selling the loan to the next
entity in the chain (perhaps Goldman Sachs) to the next
(maybe JP Morgan), with the actual note being transferred
each time. But in fact, almost no bank currently foreclosing
on homeowners has a reliable record of who owns the
loan; in some cases, they have even intentionally
shredded the actual mortgage notes. That's where the
robo-signers come in. To create the appearance of
paperwork where none exists, the banks drag in these
pimply entry-level types an infamous example is GMAC's
notorious robo-signer Jefrey Stephan, who appears online
looking like an age-advanced photo of Beavis or Butt-Head
and get them to sign thousands of documents a month
attesting to the banks' proper ownership of the mortgages.
This isn't some rare goof-up by a low-level cubicle slave:

Virtually every case of foreclosure in this country involves

some form of screwed-up paperwork. "I would say it's
pretty close to 100 percent," says Kowalski. An attorney for
Jacksonville Area Legal Aid tells me that out of the
hundreds of cases she has handled, fewer than five
involved no phony paperwork. "The fraud is the norm," she
Kowalski's current case before Judge Soud is a perfect
example. The Jacksonville couple he represents are being
sued for delinquent payments, but the case against them
has already been dismissed once before. The first time
around, the plaintif, Bank of New York Mellon, wrote in
Paragraph 8 that "plaintif owns and holds the note" on the
house belonging to the couple. But in Paragraph 3 of the
same complaint, the bank reported that the note was "lost
or destroyed," while in Paragraph 4 it attests that "plaintif
cannot reasonably obtain possession of the promissory
note because its whereabouts cannot be determined."
The bank, in other words, tried to claim on paper, in court,
that it both lost the note and had it, at the same time.
Moreover, it claimed that it had included a copy of the
note in the file, which it did the only problem being that
the note (a) was not properly endorsed, and (b) was
payable not to Bank of New York but to someone else, a
company called Novastar.
Now, months after its first pass at foreclosure was
dismissed, the bank has refiled the case and what do
you know, it suddenly found the note. And this time,
somehow, the note has the proper stamps. "There's a
stamp that did not appear on the note that was originally
filed," Kowalski tells the judge. (This business about the
stamps is hilarious. "You can get them very cheap online,"
says Chip Parker, an attorney who defends homeowners in
The bank's new set of papers also traces ownership of the
loan from the original lender, Novastar, to JP Morgan and
then to Bank of New York. The bank, in other words, is
trying to push through a completely new set of documents
in its attempts to foreclose on Kowalski's clients.

There's only one problem: The dates of the transfers are

completely fucked. According to the documents, JP Morgan
transferred the mortgage to Bank of New York on
December 9th, 2008. But according to the same
documents, JP Morgan didn't even receive the mortgage
from Novastar until February 2nd, 2009 two months
after it had supposedly passed the note along to Bank of
New York. Such rank incompetence at doctoring legal
paperwork is typical of foreclosure actions, where the fraud
is laid out in ink in ways that make it impossible for anyone
but an overburdened, half-asleep judge to miss. "That's my
point about all of this," Kowalski tells me later. "If you're
going to lie to me, at least lie well."
The dates aren't the only thing screwy about the new
documents submitted by Bank of New York. Having failed
in its earlier attempt to claim that it actually had the
mortgage note, the bank now tries an all-of-the-above
tactic. "Plaintif owns and holds the note," it claims, "or is a
person entitled to enforce the note."
Soud sighs. For Kessler, the plaintif's lawyer, to come
before him with such sloppy documents and make this
preposterous argument that his client either is or is not
the note-holder well, that puts His Honor in a tough
spot. The entire concept is a legal absurdity, and he can't
sign of on it. With an expression of something very like
regret, the judge tells Kessler, "I'm going to have to go
ahead and accept [Kowalski's] argument."
Now, one might think that after a bank makes multiple
attempts to push phony documents through a courtroom,
a judge might be pissed of enough to simply rule against
that plaintif for good. As I witness in court all morning, the
defense never gets more than one chance to screw up. But
the banks get to keep filing their foreclosures over and
over again, no matter how atrocious and deceitful their
paperwork is.
Thus, when Soud tells Kessler that he's dismissing the
case, he hastens to add: "Of course, I'm not going to
dismiss with prejudice." With an emphasis on the words "of

Instead, Soud gives Kessler 25 days to come up with better

paperwork. Kowalski fully expects the bank to come back
with new documents telling a whole new story of the
note's ownership. "What they're going to do, I would
predict, is produce a note and say Bank of New York is not
the original note-holder, but merely the servicer," he says.
This is the dirty secret of the rocket docket: The whole
system is set up to enable lenders to commit fraud over
and over again, until they figure out a way to reduce the
stink enough so some judge like Soud can sign of on the
scam. "If the court finds for the defendant, the plaintifs
just refile," says Parker, the local attorney. "The only way
for the caseload to get reduced is to give it to the plaintif.
The entire process is designed with that result in mind."
Now all of this the obviously cooked-up documents, the
magically appearing stamp and the rest of it may just
seem like nothing more than sloppy paperwork. After all,
what does it matter if the bank has lost a few forms or
mixed up the dates? The homeowners still owe what they
owe, and the deadbeats have no right to keep living in a
house they haven't paid for.
But what's going on at the Jacksonville rocket docket, and
in foreclosure courts all across the country, has nothing to
do with sloppiness. All this phony paperwork was actually
an essential part of the mortgage bubble, an integral
element of what has enabled the nation's biggest lenders
to pass of all that subprime lead as AAA gold.
In the old days, when you took out a mortgage, it was
probably through a local bank or a credit union, and
whoever gave you your loan held on to it for life. If you lost
your job or got too sick to work and suddenly had trouble
making your payments, you could call a human being and
work things out. It was in the banker's interest, as well as
yours, to make a modified payment schedule. From his
point of view, it was better that you pay something than
nothing at all.
But that all changed about a decade ago, thanks to the
invention of new financial instruments that magically

turned all these mortgages into high-grade investments.

Now when you took out a mortgage, your original lender
which might well have been a big mortgage mill like
Countrywide or New Century immediately sold of your
loan to big banks like Deutsche and Goldman and JP
Morgan. The banks then dumped hundreds or thousands of
home loans at a time into tax-exempt real estate trusts,
where the loans were diced up into securities, examined
and graded by the ratings agencies, and sold of to big
pension funds and other institutional suckers.
Even at this stage of the game, the banks generally knew
that the loans they were buying and reselling to investors
were shady. A company called Clayton Holdings, which
analyzed nearly 1 million loans being prepared for sale in
2006 and 2007 by 23 banks, found that nearly half of the
mortgages failed to meet the underwriting standards being
promised to investors. Citigroup, for instance, had 29
percent of its loans come up short, but it still sold a third of
those mortgages to investors. Goldman Sachs had 19
percent of its mortgages flunk the test, yet it knowingly
hawked 34 percent of the risky deals to investors.
D. Keith Johnson, the head of Clayton Holdings, was so
alarmed by the findings that he went to officials at three of
the main ratings agencies Moody's, Standard and Poor's,
and Fitch's and tried to get them to properly evaluate
the loans. "Wouldn't this information be great for you to
have as you assign risk levels?" he asked them.
(Translation: Don't you ratings agencies want to know that
half these loans are crap before you give them a thumbsup?) But all three agencies rejected his advice, fearing
they would lose business if they adopted tougher
standards. In the end, the agencies gave large chunks of
these mortgage-backed securities AAA ratings which
means "credit risk almost zero."
Since these mortgage-backed securities paid much higher
returns than other AAA investments like treasury notes or
corporate bonds, the banks had no trouble attracting
investors, foreign and domestic, from pension funds to
insurance companies to trade unions. The demand was so

great, in fact, that they often sold mortgages they didn't

even have yet, prompting big warehouse lenders like
Countrywide and New Century to rush out into the world to
find more warm bodies to lend to.
In their extreme haste to get thousands and thousands of
mortgages they could resell to the banks, the lenders
committed an astonishing variety of fraud, from falsifying
income statements to making grossly inflated appraisals to
misrepresenting properties to home buyers. Most crucially,
they gave tons and tons of credit to people who probably
didn't deserve it, and why not? These fly-by-night
mortgage companies weren't going to hold on to these
loans, not even for 10 minutes. They were issuing this
credit specifically to sell the loans of to the big banks right
away, in furtherance of the larger scheme to dump
fraudulent AAA-rated mortgage-backed securities on
investors. If you had a pulse, they had a house to sell you.
As bad as Countrywide and all those lenders were, the
banks that had sent them out to collect these crap loans
were a hundred times worse. To sell the loans, the banks
often dumped them into big tax-exempt buckets called
REMICs, or Real Estate Mortgage Investment Conduits.
Each one of these Enron-ish, ofshore-like real estate trusts
spelled out exactly what kinds of loans were supposed to
be in the pool, when they were to be collected, and how
they were to be managed. In order to both preserve their
tax-exempt status and deserve their AAA ratings, each of
the loans in the pool had to have certain characteristics.
The loans couldn't already be in default or foreclosure at
the time they were sold to investors. If they were
advertised as nice, safe, fixed-rate mortgages, they
couldn't turn out to be high-interest junk loans. And, on the
most basic level, the loans had to actually exist. In other
words, if the trust stipulated that all the loans had to be
collected by August 2005, the bank couldn't still be
sticking in mortgages months later.
Yet that's exactly what the banks did. In one case handled
by Jacksonville Area Legal Aid, a homeowner refinanced
her house in 2005 but almost immediately got into trouble,

going into default in December of that year. Yet somehow,

this woman's loan was placed into a trust called Home
Equity Loan Trust Series AE 2005-HE5 in January 2006
five months after the deadline for that particular trust. The
loan was not only late, it was already in foreclosure
which means that, by definition, whoever the investors
were in AE 2005-HE5 were getting shafted.
Why does stuf like this matter? Because when the banks
put these pools together, they were telling their investors
that they were putting their money into tidy collections of
real, performing home loans. But frequently, the loans in
the trust were complete shit. Or sometimes, the banks
didn't even have all the loans they said they had. But the
banks sold the securities based on these pools of
mortgages as AAA-rated gold anyway.
In short, all of this was a scam and that's why so many
of these mortgages lack a true paper trail. Had these
transfers been done legally, the actual mortgage note and
detailed information about all of these transactions would
have been passed from entity to entity each time the
mortgage was sold. But in actual practice, the banks were
often committing securities fraud (because many of the
mortgages did not match the information in the
prospectuses given to investors) and tax fraud (because
the way the mortgages were collected and serviced often
violated the strict procedures governing such
investments). Having unloaded this diseased cargo onto
their unsuspecting customers, the banks had no incentive
to waste money keeping "proper" documentation of all
these dubious transactions.
"You've already committed fraud once," says April
Charney, an attorney with Jacksonville Area Legal Aid.
"What do you have to lose?"
Sitting in the rocket docket, James Kowalski considers
himself lucky to have won his first motion of the morning.
To get the usually intractable Judge Soud to forestall a
foreclosure is considered a real victory, and I later hear
Kowalski getting props and attaboys from other foreclosure

lawyers. In a great deal of these cases, in fact, the

homeowners would have a pretty good chance of beating
the rap, at least temporarily, if only they had lawyers
fighting for them in court. But most of them don't. In fact,
more than 90 percent of the cases that go through Florida
foreclosure courts are unopposed. Either homeowners
don't know they can fight their foreclosures, or they simply
can't aford an attorney. These unopposed cases are the
ones the banks know they'll win which is why they don't
sweat it if they take the occasional whipping.
That's why all these colorful descriptions of cases where
foreclosure lawyers like Kowalski score in court are really
just that a little color. The meat of the foreclosure crisis
is the unopposed cases; that's where the banks make their
money. They almost always win those cases, no matter
what's in the files.
This becomes evident after Kowalski leaves the room.
"Who's next?" Judge Soud says. He turns to Mark Kessler,
the counsel for the big foreclosure mills. "Mark, you still
got some?"
"I've got about three more, Judge," says Kessler.
Kessler then drops three greenish-brown files in front of
Judge Soud, who spends no more than a minute or two
glancing through each one. Then he closes the files and
puts an end to the process by putting his official stamp on
each foreclosure with an authoritative finality:
Each one of those kerchunks means another family on the
street. There are no faces involved here, just beat-theclock legal machinery. Watching Judge Soud plow through
each foreclosure reminds me of the scene in Fargo where
the villain played by Swedish character actor Peter
Stormare pushes his victim's leg through a wood chipper
with that trademark bored look on his face. Mechanized
misery and brainless bureaucracy on the one hand, cash
for the banks on the other.
What's sad is that most Americans who have an opinion
about the foreclosure crisis don't give a shit about all the
fraud involved. They don't care that these mortgages

wouldn't have been available in the first place if the banks

hadn't found a way to sell oregano as weed to pension
funds and insurance companies. They don't care that the
Countrywides of the world pushed borrowers who qualified
for safer fixed-income loans into far more dangerous
adjustable-rate loans, because their brokers got bigger
commissions for doing so. They don't care that in the rush
to produce loans, people were sold houses that turned out
to have flood damage or worse, and they certainly don't
care that people were sold houses with inflated appraisals,
which left them almost immediately underwater once
housing prices started falling.
The way the banks tell it, it doesn't matter if they
defrauded homeowners and investors and taxpayers alike
to get these loans. All that matters is that a bunch of
deadbeats aren't paying their fucking bills. "If you didn't
pay your mortgage, you shouldn't be in your house
period," is how Walter Todd, portfolio manager at
Greenwood Capital Associates, puts it. "People are getting
upset about something that's just procedural."
Jamie Dimon, the CEO of JP Morgan, is even more succinct
in dismissing the struggling homeowners that he and the
other megabanks scammed before tossing out into the
street. "We're not evicting people who deserve to stay in
their house," Dimon says.
There are two things wrong with this argument. (Well,
more than two, actually, but let's just stick to the two big
The first reason is: It simply isn't true. Many people who
are being foreclosed on have actually paid their bills and
followed all the instructions laid down by their banks. In
some cases, a homeowner contacts the bank to say that
he's having trouble paying his bill, and the bank ofers him
loan modification. But the bank tells him that in order to
qualify for modification, he must first be delinquent on his
mortgage. "They actually tell people to stop paying their
bills for three months," says Parker.
The authorization gets recorded in what's known as the
bank's "contact database," which records every phone call

or other communication with a homeowner. But no

mention of it is entered into the bank's "number history,"
which records only the payment record. When the number
history notes that the homeowner has missed three
payments in a row, it has no way of knowing that the
homeowner was given permission to stop making
payments. "One computer generates a default letter," says
Kowalski. "Another computer contacts the credit bureaus."
At no time is there a human being looking at the entire
Which means that homeowners can be foreclosed on for all
sorts of faulty reasons: misplaced checks, address errors,
you name it. This inability of one limb of the foreclosure
beast to know what the other limb is doing is responsible
for many of the horrific stories befalling homeowners
across the country. Patti Parker, a local attorney in
Jacksonville, tells of a woman whose home was seized by
Deutsche Bank two days before Christmas. Months later,
Deutsche came back and admitted that they had made a
mistake: They had repossessed the wrong property. In
another case that made headlines in Orlando, an agent for
JP Morgan mistakenly broke into a woman's house that
wasn't even in foreclosure and tried to change the locks.
Terrified, the woman locked herself in her bathroom and
called 911. But in a profound expression of the state's
reflexive willingness to side with the bad guys, the police
made no arrest in the case. Breaking and entering is not a
crime, apparently, when it's authorized by a bank.
The second reason the whole they still owe the fucking
money thing is bogus has to do with the changed
incentives in the mortgage game. In many cases, banks
like JP Morgan are merely the servicers of all these home
loans, charged with collecting your money every month
and paying every penny of it into the trust, which is the
real owner of your mortgage. If you pay less than the
whole amount, JP Morgan is now obligated to pay the trust
the remainder out of its own pocket. When you fall behind,
your bank falls behind, too. The only way it gets of the

hook is if the house is foreclosed on and sold.

That's what this foreclosure crisis is all about: fleeing the
scene of the crime. Add into the equation the fact that
some of these big banks were simultaneously betting big
money against these mortgages Goldman Sachs being
the prime example and you can see that there were
heavy incentives across the board to push anyone in
trouble over the clif.
Things used to be diferent. Asked what percentage of
struggling homeowners she used to be able to save from
foreclosure in the days before securitization, Charney is
quick to answer. "Most of them," she says. "I seldom came
across a mortgage I couldn't work out."
In Judge Soud's court, I come across a shining example of
this mindless rush to foreclosure when I meet Natasha
Leonard, a single mother who bought a house in 2004 for
$97,500. Right after closing on the home, Leonard lost her
job. But when she tried to get a modification on the loan,
the bank's ofer was not helpful. "They wanted me to pay
$1,000," she says. Which wasn't exactly the kind of
modification she was hoping for, given that her original
monthly payment was $840.
"You're paying $840, you ask for a break, and they ask you
to pay $1,000?" I ask.
"Right," she says.
Leonard now has a job and could make some kind of
reduced payment. But instead of ofering loan
modification, the bank's lawyers are in their fourth year of
doggedly beating her brains out over minor technicalities
in the foreclosure process. That's fine by the lawyers, who
are collecting big fees. And there appears to be no human
being at the bank who's involved enough to issue a sane
decision to end the costly battle. "If there was a real client
on the other side, maybe they could work something out,"
says Charney, who is representing Leonard. In this lunatic
bureaucratic jungle of securitized home loans issued by
transnational behemoths, the borrower-lender relationship
can only go one of two ways: full payment, or total war.
The extreme randomness of the system is exemplified by

the last case I see in the rocket docket. While most

foreclosures are unopposed, with homeowners not even
bothering to show up in court to defend themselves, a few
pro se defendants people representing themselves
occasionally trickle in. At one point during Judge Soud's
proceeding, a tallish blond woman named Shawnetta
Cooper walks in with a confused look on her face. A recent
divorcee delinquent in her payments, she has come to
court today fully expecting to be foreclosed on by Wells
Fargo. She sits down and takes a quick look around at the
lawyers who are here to kick her out of her home. "The
land has been in my family for four generations," she tells
me later. "I don't want to be the one to lose it."
Judge Soud pipes up and inquires if there's a plaintif
lawyer present; someone has to lop of this woman's head
so the court can move on to the next case. But then
something unexpected happens: It turns out that Kessler is
supposed to be foreclosing on her today, but he doesn't
have her folder. The plaintif, technically, has forgotten to
show up to court.
Just minutes before, I had watched what happens when
defendants don't show up in court: kerchunk! The judge
more or less automatically rules for the plaintifs when the
homeowner is a no-show. But when the plaintiff doesn't
show, the judge is suddenly all mercy and forgiveness.
Soud simply continues Cooper's case, telling Kessler to get
his shit together and come back for another whack at her
in a few weeks. Having done this, he dismisses everyone.
Stunned, Cooper wanders out of the courtroom looking like
a person who has stepped up to the gallows expecting to
be hanged, but has instead been handed a fruit basket and
a new set of golf clubs.
I follow her out of the court, hoping to ask her about her
case. But the sight of a journalist getting up to talk to a
defendant in his kangaroo court clearly puts a charge into
His Honor, and he immediately calls Cooper back into the
conference room. Then, to the amazement of everyone
present, he issues the following speech:
"This young man," he says, pointing at me, "is a reporter

for Rolling Stone. It is your privilege to talk to him if you

want." He pauses. "It is also your privilege to not talk to
him if you want."
I stare at the judge, open-mouthed. Here's a woman who
still has to come back to this guy's court to find out if she
can keep her home, and the judge's admonition suggests
that she may run the risk of pissing him of if she talks to a
reporter. Worse, about an hour later, April Charney, the
lawyer who accompanied me to court, receives an e-mail
from the judge actually threatening her with contempt for
bringing a stranger to his court. Noting that "we ask that
anyone other than a lawyer remain in the lobby," Judge
Soud admonishes Charney that "your unprofessional
conduct and apparent authorization that the reporter could
pursue a property owner immediately out of Chambers
into the hallway for an interview, may very well be sited
[sic] for possible contempt in the future."
Let's leave aside for a moment that Charney never said a
word to me about speaking to Cooper. And let's overlook
entirely the fact that the judge can't spell the word cited.
The key here isn't this individual judge it's the notion
that these hearings are not and should not be entirely
public. Quite clearly, foreclosure is meant to be neither
seen nor heard.
After Soud's outburst, Cooper quietly leaves the court.
Once out of sight of the judge, she shows me her file. It's
not hard to find the fraud in the case. For starters, the
assignment of mortgage is autographed by a notorious
robo-signer John Kennerty, who gave a deposition this
summer admitting that he signed as many as 150
documents a day for Wells Fargo. In Cooper's case, the
document with Kennerty's signature on it places the date
on which Wells Fargo obtained the mortgage as May 5th,
2010. The trouble is, the bank bought the loan from
Wachovia a bank that went out of business in 2008. All
of which is interesting, because in her file, it states that
Wells Fargo sued Cooper for foreclosure on February 22nd,
2010. In other words, the bank foreclosed on Cooper three
months before it obtained her mortgage from a

nonexistent company.
There are other types of grift and outright theft in the file.
As is typical in many foreclosure cases, Cooper is being
charged by the bank for numerous attempts to serve her
with papers. But a booming industry has grown up around
fraudulent process servers; companies will claim they
made dozens of attempts to serve homeowners, when in
fact they made just one or none at all. Who's going to
check? The process servers cover up the crime using the
same tactic as the lenders, saying they lost the original
summons. From 2000 to 2006, there was a total of 1,031
"affidavits of lost summons" here in Duval County; in the
past two years, by contrast, more than 4,000 have been
Cooper's file contains a total of $371 in fees for process
service, including one charge of $55 for an attempt to
serve process on an "unknown tenant." But Cooper's house
is owner-occupied she doesn't even have a tenant, she
tells me with a shrug. If Mark Kessler had had his shit
together in court today, Cooper would not only be out on
the street, she'd be paying for that attempt to serve
papers to her nonexistent tenant.
Cooper's case perfectly summarizes what the foreclosure
crisis is all about. Her original loan was made by Wachovia,
a bank that blew itself up in 2008 speculating in the
mortgage market. It was then transferred to Wells Fargo, a
megabank that was handed some $50 billion in public
assistance to help it acquire the corpse of Wachovia. And
who else benefited from that $50 billion in bailout money?
Billionaire Warren Bufett and his Berkshire Hathaway fund,
which happens to be a major shareholder in Wells Fargo. It
was Bufett's vice chairman, Charles Munger, who recently
told America that it should "thank God" that the
government bailed out banks like the one he invests in,
while people who have fallen on hard times that is,
homeowners like Shawnetta Cooper should "suck it in
and cope."
Look: It's undeniable that many of the people facing

foreclosure bear some responsibility for the crisis. Some

borrowed beyond their means. Some even borrowed
knowing they would never be able to pay of their debt,
either hoping to flip their houses right away or taking on
mortgages with low initial teaser rates without bothering
to think of the future. The culture of take-for-yourself-now,
let-someone-else-pay-later wasn't completely restricted to
Wall Street. It penetrated all the way down to the
individual consumer, who in some cases was a knowing
accomplice in the bubble mess.
But many of these homeowners are just ordinary Joes who
had no idea what they were getting into. Some were
pushed into dangerous loans when they qualified for safe
ones. Others were told not to worry about future jumps in
interest rates because they could just refinance down the
road, or discovered that the value of their homes had been
overinflated by brokers looking to pad their commissions.
And that's not even accounting for the fact that most of
this credit wouldn't have been available in the first place
without the Ponzi-like bubble scheme cooked up by Wall
Street, about which the average homeowner knew nothing
hell, even the average U.S. senator didn't know about it.
At worst, these ordinary homeowners were stupid or
uninformed while the banks that lent them the money
are guilty of committing a baldfaced crime on a grand
scale. These banks robbed investors and conned
homeowners, blew themselves up chasing the fraud, then
begged the taxpayers to bail them out. And bail them out
we did: We ponied up billions to help Wells Fargo buy
Wachovia, paid Bank of America to buy Merrill Lynch, and
watched as the Fed opened up special facilities to buy up
the assets in defective mortgage trusts at inflated prices.
And after all that efort by the state to buy back these
phony assets so the thieves could all stay in business and
keep their bonuses, what did the banks do? They put their
foot on the foreclosure gas pedal and stepped up the efort
to kick people out of their homes as fast as possible,
before the world caught on to how these loans were made
in the first place.

Why don't the banks want us to see the paperwork on all

these mortgages? Because the documents represent a
death sentence for them. According to the rules of the
mortgage trusts, a lender like Bank of America, which
controls all the Countrywide loans, is required by law to
buy back from investors every faulty loan the crooks at
Countrywide ever issued. Think about what that would do
to Bank of America's bottom line the next time you wonder
why they're trying so hard to rush these loans into
someone else's hands.
When you meet people who are losing their homes in this
foreclosure crisis, they almost all have the same look of
deep shame and anguish. Nowhere else on the planet is it
such a crime to be down on your luck, even if you were put
there by some of the world's richest banks, which continue
to rake in record profits purely because they got a big fat
handout from the government. That's why one banker CEO
after another keeps going on TV to explain that despite
their own deceptive loans and fraudulent paperwork, the
real problem is these deadbeat homeowners who won't
pay their fucking bills. And that's why most people in this
country are so ready to buy that explanation. Because in
America, it's far more shameful to owe money than it is to
steal it.
By now, most of us know the major players.
**As George Bush's last Treasury secretary,
**former Goldman CEO Henry Paulson
**was the architect of the bailout, a suspiciously selfserving plan to funnel trillions of Your Dollars to a handful
of his old friends on Wall Street.
**Robert Rubin,
**Bill Clinton's former Treasury secretary,
**spent 26 years at Goldman before becoming chairman of
Citigroup which in turn got a $300 billion taxpayer
bailout from Paulson.
**There's John Thain, the asshole chief of Merrill Lynch
who bought an $87,000 area rug for his office as his

company was imploding;

**steve says, valdis has an $87,000 area rug
**a former Goldman banker, Thain enjoyed a multi-billiondollar handout from Paulson, who used billions in taxpayer
funds to help Bank of America rescue Thain's sorry
company. And
**Robert Steel, the former Goldmanite head of Wachovia,
**scored himself and his fellow executives $225 million in
golden-parachute payments as his bank was selfdestructing. There's
**Joshua Bolten, Bush's chief of staf during the bailout,
**Mark Patterson, the current Treasury chief of staf,
**who was a Goldman lobbyist just a year ago, and
**Ed Liddy, the former Goldman director whom Paulson put
in charge of bailed-out insurance giant AIG,
**which forked over $13 billion to Goldman after Liddy
came on board.
The heads of the Canadian and Italian national banks
**are Goldman alums,
**as is the head of the World Bank,
**the head of the New York Stock Exchange,
**the last two heads of the Federal Reserve Bank of New
York which, incidentally, is now in charge of overseeing
Goldman not to mention
But then, any attempt to construct a narrative around all
the former
in influential positions quickly becomes an absurd and
pointless exercise,
**like trying to make a list of everything.
What you need to know is the big picture:
**If America is circling the drain, Goldman Sachs has found
a way to be that drain

**an extremely unfortunate loophole in the system of

Western democratic capitalism,
**which never foresaw that
**in a society governed passively by free markets and free
**organized greed always defeats disorganized democracy.
The bank's unprecedented reach and power have enabled
it to
**turn all of America into a giant pump-and-dump scam,
manipulating whole economic sectors for years at a time,
moving the dice game as this or that market collapses,
and all the time gorging itself on the unseen costs that are
breaking families everywhere
high gas prices,
rising consumer credit rates,
half-eaten pension funds,
mass layofs,
future taxes to pay of bailouts.
**All that money that you're losing, it's going somewhere,
and in both a literal and a figurative sense, Goldman Sachs
is where it's going:
The bank is a huge, highly sophisticated engine for
converting the useful, deployed wealth of society into the
least useful, most wasteful and insoluble substance on
Earth pure profit for rich individuals.
The Feds vs. Goldman
The government's case against Goldman Sachs barely
begins to target the depths of Wall Street's criminal sleaze
On the day the Securities and Exchange Commission filed
suit against Goldman Sachs for securities fraud, shares in

the company plunged 12.8 percent, closing at $160.70.

The market, it seemed, was finally passing judgment on a
decade of high-stakes Wall Street scammery that left
America threatening Nigeria, Indonesia and Belarus on the
list of the world's most corrupt economies.
A few days later, Goldman announced its first-quarter
Profits were up 91 percent, to a staggering $3.4 billion.
Compensation and bonuses soared to $5.5 billion, up from
$4.7 billion in the first quarter of 2009. Battered in the
press, Goldman was raking up on the bottom line. So
investors once again leapt into Goldman's arms, pushing
the stock as high as $166.50, not far from where it was
even before news of the SEC suit broke.
Goldman isn't dead far from it. But this new SEC suit
officially places it at the center of a raging national
discussion about the hopelessly fucked state of American
business ethics.
As a halting, first-step attempt at financial regulatory
reform makes its way toward a vote in the Senate, the
government has finally thrown open the door and let a few
of the rottener skeletons tumble out.
The Great American Bubble Machine
From tech stocks to high gas prices, Goldman Sachs has
engineered every major market manipulation since the
Great Depression -- and they're about to do it again
The first thing you need to know about Goldman Sachs is
that it's everywhere. The world's most powerful
investment bank is a great vampire squid wrapped around
the face of humanity, relentlessly jamming its blood funnel
into anything that smells like money. In fact, the history of
the recent financial crisis, which doubles as a history of the
rapid decline and fall of the suddenly swindled dry

American empire, reads like a Who's Who of Goldman

Sachs graduates.
Invasion of the Home Snatchers
By now, most of us know the major players. As George
Bush's last Treasury secretary, former Goldman CEO Henry
Paulson was the architect of the bailout, a suspiciously selfserving plan to funnel trillions of Your Dollars to a handful
of his old friends on Wall Street. Robert Rubin, Bill Clinton's
former Treasury secretary, spent 26 years at Goldman
before becoming chairman of Citigroup which in turn got
a $300 billion taxpayer bailout from Paulson. There's John
Thain, the asshole chief of Merrill Lynch who bought an
$87,000 area rug for his office as his company was
imploding; a former Goldman banker, Thain enjoyed a
multi-billion-dollar handout from Paulson, who used billions
in taxpayer funds to help Bank of America rescue Thain's
sorry company. And Robert Steel, the former Goldmanite
head of Wachovia, scored himself and his fellow executives
$225 million in golden-parachute payments as his bank
was self-destructing. There's Joshua Bolten, Bush's chief of
staf during the bailout, and Mark Patterson, the current
Treasury chief of staf, who was a Goldman lobbyist just a
year ago, and Ed Liddy, the former Goldman director
whom Paulson put in charge of bailed-out insurance giant
AIG, which forked over $13 billion to Goldman after Liddy
came on board. The heads of the Canadian and Italian
national banks are Goldman alums, as is the head of the
World Bank, the head of the New York Stock Exchange, the
last two heads of the Federal Reserve Bank of New York
which, incidentally, is now in charge of overseeing
Goldman not to mention
But then, any attempt to construct a narrative around all
the former Goldmanites in influential positions quickly
becomes an absurd and pointless exercise, like trying to
make a list of everything. What you need to know is the
big picture: If America is circling the drain, Goldman Sachs
has found a way to be that drain an extremely
unfortunate loophole in the system of Western democratic

capitalism, which never foresaw that in a society governed

passively by free markets and free elections, organized
greed always defeats disorganized democracy.
The bank's unprecedented reach and power have enabled
it to turn all of America into a giant pump-and-dump scam,
manipulating whole economic sectors for years at a time,
moving the dice game as this or that market collapses,
and all the time gorging itself on the unseen costs that are
breaking families everywhere high gas prices, rising
consumer credit rates, half-eaten pension funds, mass
layofs, future taxes to pay of bailouts. All that money that
you're losing, it's going somewhere, and in both a literal
and a figurative sense, Goldman Sachs is where it's going:
The bank is a huge, highly sophisticated engine for
converting the useful, deployed wealth of society into the
least useful, most wasteful and insoluble substance on
Earth pure profit for rich individuals.
The Feds vs. Goldman
They achieve this using the same playbook over and over
again. The formula is relatively simple: Goldman positions
itself in the middle of a speculative bubble, selling
investments they know are crap. Then they hoover up vast
sums from the middle and lower floors of society with the
aid of a crippled and corrupt state that allows it to rewrite
the rules in exchange for the relative pennies the bank
throws at political patronage. Finally, when it all goes bust,
leaving millions of ordinary citizens broke and starving,
they begin the entire process over again, riding in to
rescue us all by lending us back our own money at
interest, selling themselves as men above greed, just a
bunch of really smart guys keeping the wheels greased.
They've been pulling this same stunt over and over since
the 1920s and now they're preparing to do it again,
creating what may be the biggest and most audacious
bubble yet.
If you want to understand how we got into this financial
crisis, you have to first understand where all the money
went and in order to understand that, you need to
understand what Goldman has already gotten away with. It

is a history exactly five bubbles long including last

year's strange and seemingly inexplicable spike in the
price of oil. There were a lot of losers in each of those
bubbles, and in the bailout that followed. But Goldman
wasn't one of them.
BUBBLE #1 The Great Depression
Goldman wasn't always a too-big-to-fail Wall Street
behemoth, the ruthless face of kill-or-be-killed capitalism
on steroids just almost always. The bank was actually
founded in 1869 by a German immigrant named Marcus
Goldman, who built it up with his son-in-law Samuel Sachs.
They were pioneers in the use of commercial paper, which
is just a fancy way of saying they made money lending out
short-term IOUs to smalltime vendors in downtown
You can probably guess the basic plotline of Goldman's
first 100 years in business: plucky, immigrant-led
investment bank beats the odds, pulls itself up by its
bootstraps, makes shitloads of money. In that ancient
history there's really only one episode that bears scrutiny
now, in light of more recent events: Goldmans disastrous
foray into the speculative mania of pre-crash Wall Street in
the late 1920s.
Wall Street's Big Win
This great Hindenburg of financial history has a few
features that might sound familiar. Back then, the main
financial tool used to bilk investors was called an
"investment trust." Similar to modern mutual funds, the
trusts took the cash of investors large and small and
(theoretically, at least) invested it in a smorgasbord of Wall
Street securities, though the securities and amounts were
often kept hidden from the public. So a regular guy could
invest $10 or $100 in a trust and feel like he was a big
player. Much as in the 1990s, when new vehicles like day
trading and e-trading attracted reams of new suckers from
the sticks who wanted to feel like big shots, investment
trusts roped a new generation of regular-guy investors into
the speculation game.
Beginning a pattern that would repeat itself over and over

again, Goldman got into the investmenttrust game late,

then jumped in with both feet and went hogwild. The first
efort was the Goldman Sachs Trading Corporation; the
bank issued a million shares at $100 apiece, bought all
those shares with its own money and then sold 90 percent
of them to the hungry public at $104. The trading
corporation then relentlessly bought shares in itself,
bidding the price up further and further. Eventually it
dumped part of its holdings and sponsored a new trust, the
Shenandoah Corporation, issuing millions more in shares in
that fund which in turn sponsored yet another trust
called the Blue Ridge Corporation. In this way, each
investment trust served as a front for an endless
investment pyramid: Goldman hiding behind Goldman
hiding behind Goldman. Of the 7,250,000 initial shares of
Blue Ridge, 6,250,000 were actually owned by
Shenandoah which, of course, was in large part owned
by Goldman Trading.
Taibblog: Commentary on Politics and the Economy by
Matt Taibbi
The end result (ask yourself if this sounds familiar) was a
daisy chain of borrowed money, one exquisitely vulnerable
to a decline in performance anywhere along the line. The
basic idea isn't hard to follow. You take a dollar and borrow
nine against it; then you take that $10 fund and borrow
$90; then you take your $100 fund and, so long as the
public is still lending, borrow and invest $900. If the last
fund in the line starts to lose value, you no longer have the
money to pay back your investors, and everyone gets
In a chapter from The Great Crash, 1929 titled "In Goldman
Sachs We Trust," the famed economist John Kenneth
Galbraith held up the Blue Ridge and Shenandoah trusts as
classic examples of the insanity of leveragebased
investment. The trusts, he wrote, were a major cause of
the market's historic crash; in today's dollars, the losses
the bank sufered totaled $475 billion. "It is difficult not to
marvel at the imagination which was implicit in this
gargantuan insanity," Galbraith observed, sounding like

Keith Olbermann in an ascot. "If there must be madness,

something may be said for having it on a heroic scale."
BUBBLE #2 Tech Stocks
Fast-forward about 65 years. Goldman not only survived
the crash that wiped out so many of the investors it duped,
it went on to become the chief underwriter to the country's
wealthiest and most powerful corporations. Thanks to
Sidney Weinberg, who rose from the rank of janitor's
assistant to head the firm, Goldman became the pioneer of
the initial public ofering, one of the principal and most
lucrative means by which companies raise money. During
the 1970s and 1980s, Goldman may not have been the
planet-eating Death Star of political influence it is today,
but it was a top-drawer firm that had a reputation for
attracting the very smartest talent on the Street.
It also, oddly enough, had a reputation for relatively solid
ethics and a patient approach to investment that shunned
the fast buck; its executives were trained to adopt the
firm's mantra, "long-term greedy." One former Goldman
banker who left the firm in the early Nineties recalls seeing
his superiors give up a very profitable deal on the grounds
that it was a long-term loser. "We gave back money to
'grownup' corporate clients who had made bad deals with
us," he says. "Everything we did was legal and fair but
'long-term greedy' said we didn't want to make such a
profit at the clients' collective expense that we spoiled the
But then, something happened. It's hard to say what it was
exactly; it might have been the fact that Goldman's
cochairman in the early Nineties, Robert Rubin, followed
Bill Clinton to the White House, where he directed the
National Economic Council and eventually became
Treasury secretary. While the American media fell in love
with the story line of a pair of baby-boomer, Sixties-child,
Fleetwood Mac yuppies nesting in the White House, it also
nursed an undisguised crush on Rubin, who was hyped as
without a doubt the smartest person ever to walk the face
of the Earth, with Newton, Einstein, Mozart and Kant
running far behind.

Rubin was the prototypical Goldman banker. He was

probably born in a $4,000 suit, he had a face that seemed
permanently frozen just short of an apology for being so
much smarter than you, and he exuded a Spock-like,
emotion-neutral exterior; the only human feeling you could
imagine him experiencing was a nightmare about being
forced to fly coach. It became almost a national clich that
whatever Rubin thought was best for the economy a
phenomenon that reached its apex in 1999, when Rubin
appeared on the cover of Time with his Treasury deputy,
Larry Summers, and Fed chief Alan Greenspan under the
headline The Committee To Save The World. And "what
Rubin thought," mostly, was that the American economy,
and in particular the financial markets, were overregulated and needed to be set free. During his tenure at
Treasury, the Clinton White House made a series of moves
that would have drastic consequences for the global
economy beginning with Rubin's complete and total
failure to regulate hisold firm during its first mad dash for
obscene short-term profits.
The basic scam in the Internet Age is pretty easy even for
the financially illiterate to grasp. Companies that weren't
much more than potfueled ideas scrawled on napkins by
uptoolate bongsmokers were taken public via IPOs, hyped
in the media and sold to the public for mega-millions. It
was as if banks like Goldman were wrapping ribbons
around watermelons, tossing them out 50-story windows
and opening the phones for bids. In this game you were a
winner only if you took your money out before the melon
hit the pavement.
It sounds obvious now, but what the average investor
didn't know at the time was that the banks had changed
the rules of the game, making the deals look better than
they actually were. They did this by setting up what was,
in reality, a two-tiered investment system one for the
insiders who knew the real numbers, and another for the
lay investor who was invited to chase soaring prices the
banks themselves knew were irrational. While Goldman's
later pattern would be to capitalize on changes in the

regulatory environment, its key innovation in the Internet

years was to abandon its own industry's standards of
quality control.
"Since the Depression, there were strict underwriting
guidelines that Wall Street adhered to when taking a
company public," says one prominent hedge-fund
manager. "The company had to be in business for a
minimum of five years, and it had to show profitability for
three consecutive years. But Wall Street took these
guidelines and threw them in the trash." Goldman
completed the snow job by pumping up the sham stocks:
"Their analysts were out there saying is worth
$100 a share."
The problem was, nobody told investors that the rules had
changed. "Everyone on the inside knew," the manager
says. "Bob Rubin sure as hell knew what the underwriting
standards were. They'd been intact since the 1930s."
Jay Ritter, a professor of finance at the University of Florida
who specializes in IPOs, says banks like Goldman knew full
well that many of the public oferings they were touting
would never make a dime. "In the early Eighties, the major
underwriters insisted on three years of profitability. Then it
was one year, then it was a quarter. By the time of the
Internet bubble, they were not even requiring profitability
in the foreseeable future."
Goldman has denied that it changed its underwriting
standards during the Internet years, but its own statistics
belie the claim. Just as it did with the investment trust in
the 1920s, Goldman started slow and finished crazy in the
Internet years. After it took a little-known company with
weak financials called Yahoo! public in 1996, once the tech
boom had already begun, Goldman quickly became the
IPO king of the Internet era. Of the 24 companies it took
public in 1997, a third were losing money at the time of
the IPO. In 1999, at the height of the boom, it took 47
companies public, including stillborns like Webvan and
eToys, investment oferings that were in many ways the
modern equivalents of Blue Ridge and Shenandoah. The
following year, it underwrote 18 companies in the first four

months, 14 of which were money losers at the time. As a

leading underwriter of Internet stocks during the boom,
Goldman provided profits far more volatile than those of its
competitors: In 1999, the average Goldman IPO leapt 281
percent above its ofering price, compared to the Wall
Street average of 181 percent.
How did Goldman achieve such extraordinary results? One
answer is that they used a practice called "laddering,"
which is just a fancy way of saying they manipulated the
share price of new oferings. Here's how it works: Say
you're Goldman Sachs, and comes to you and
asks you to take their company public. You agree on the
usual terms: You'll price the stock, determine how many
shares should be released and take the CEO
on a "road show" to schmooze investors, all in exchange
for a substantial fee (typically six to seven percent of the
amount raised). You then promise your best clients the
right to buy big chunks of the IPO at the low ofering price
let's say's starting share price is $15 in
exchange for a promise that they will buy more shares
later on the open market. That seemingly simple demand
gives you inside knowledge of the IPO's future, knowledge
that wasn't disclosed to the day trader schmucks who only
had the prospectus to go by: You know that certain of your
clients who bought X amount of shares at $15 are also
going to buy Y more shares at $20 or $25, virtually
guaranteeing that the price is going to go to $25 and
beyond. In this way, Goldman could artificially jack up the
new company's price, which of course was to the bank's
benefit a six percent fee of a $500 million IPO is serious
Goldman was repeatedly sued by shareholders for
engaging in laddering in a variety of Internet IPOs,
including Webvan and NetZero. The deceptive practices
also caught the attention of Nicholas Maier, the syndicate
manager of Cramer & Co., the hedge fund run at the time
by the now-famous chattering television asshole Jim
Cramer, himself a Goldman alum. Maier told the SEC that
while working for Cramer between 1996 and 1998, he was

repeatedly forced to engage in laddering practices during

IPO deals with Goldman.
"Goldman, from what I witnessed, they were the worst
perpetrator," Maier said. "They totally fueled the bubble.
And it's specifically that kind of behavior that has caused
the market crash. They built these stocks upon an illegal
foundation manipulated up and ultimately, it really
was the small person who ended up buying in." In 2005,
Goldman agreed to pay $40 million for its laddering
violations a puny penalty relative to the enormous
profits it made. (Goldman, which has denied wrongdoing in
all of the cases it has settled, refused to respond to
questions for this story.)
Another practice Goldman engaged in during the Internet
boom was "spinning," better known as bribery. Here the
investment bank would ofer the executives of the newly
public company shares at extra-low prices, in exchange for
future underwriting business. Banks that engaged in
spinning would then undervalue the initial ofering price
ensuring that those "hot" opening-price shares it had
handed out to insiders would be more likely to rise quickly,
supplying bigger first-day rewards for the chosen few. So
instead of opening at $20, the bank would
approach the CEO and ofer him a million
shares of his own company at $18 in exchange for future
business efectively robbing all of Bullshit's new
shareholders by diverting cash that should have gone to
the company's bottom line into the private bank account
of the company's CEO.
In one case, Goldman allegedly gave a multimillion-dollar
special ofering to eBay CEO Meg Whitman, who later
joined Goldman's board, in exchange for future i-banking
business. According to a report by the House Financial
Services Committee in 2002, Goldman gave special stock
oferings to executives in 21 companies that it took public,
including Yahoo! cofounder Jerry Yang and two of the great
slithering villains of the financial-scandal age Tyco's
Dennis Kozlowski and Enron's Ken Lay. Goldman angrily
denounced the report as "an egregious distortion of the

facts" shortly before paying $110 million to settle an

investigation into spinning and other manipulations
launched by New York state regulators. "The spinning of
hot IPO shares was not a harmless corporate perk," thenattorney general Eliot Spitzer said at the time. "Instead, it
was an integral part of a fraudulent scheme to win new
investment-banking business."
Such practices conspired to turn the Internet bubble into
one of the greatest financial disasters in world history:
Some $5 trillion of wealth was wiped out on the NASDAQ
alone. But the real problem wasn't the money that was lost
by shareholders, it was the money gained by investment
bankers, who received hefty bonuses for tampering with
the market. Instead of teaching Wall Street a lesson that
bubbles always deflate, the Internet years demonstrated
to bankers that in the age of freely flowing capital and
publicly owned financial companies, bubbles are incredibly
easy to inflate, and individual bonuses are actually bigger
when the mania and the irrationality are greater.
Nowhere was this truer than at Goldman. Between 1999
and 2002, the firm paid out $28.5 billion in compensation
and benefits an average of roughly $350,000 a year per
employee. Those numbers are important because the key
legacy of the Internet boom is that the economy is now
driven in large part by the pursuit of the enormous salaries
and bonuses that such bubbles make possible. Goldman's
mantra of "long-term greedy" vanished into thin air as the
game became about getting your check before the melon
hit the pavement.
The market was no longer a rationally managed place to
grow real, profitable businesses: It was a huge ocean of
Someone Else's Money where bankers hauled in vast sums
through whatever means necessary and tried to convert
that money into bonuses and payouts as quickly as
possible. If you laddered and spun 50 Internet IPOs that
went bust within a year, so what? By the time the
Securities and Exchange Commission got around to fining
your firm $110 million, the yacht you bought with your IPO
bonuses was already six years old. Besides, you were

probably out of Goldman by then, running the U.S.

Treasury or maybe the state of New Jersey. (One of the
truly comic moments in the history of America's recent
financial collapse came when Gov. Jon Corzine of New
Jersey, who ran Goldman from 1994 to 1999 and left with
$320 million in IPO-fattened stock, insisted in 2002 that
"I've never even heard the term 'laddering' before.")
For a bank that paid out $7 billion a year in salaries, $110
million fines issued half a decade late were something far
less than a deterrent they were a joke. Once the Internet
bubble burst, Goldman had no incentive to reassess its
new, profit-driven strategy; it just searched around for
another bubble to inflate. As it turns out, it had one ready,
thanks in large part to Rubin.
BUBBLE #3 The Housing Craze
Goldman's role in the sweeping global disaster that was
the housing bubble is not hard to trace. Here again, the
basic trick was a decline in underwriting standards,
although in this case the standards weren't in IPOs but in
mortgages. By now almost everyone knows that for
decades mortgage dealers insisted that home buyers be
able to produce a down payment of 10 percent or more,
show a steady income and good credit rating, and possess
a real first and last name. Then, at the dawn of the new
millennium, they suddenly threw all that shit out the
window and started writing mortgages on the backs of
napkins to cocktail waitresses and ex-cons carrying five
bucks and a Snickers bar.
None of that would have been possible without investment
bankers like Goldman, who created vehicles to package
those shitty mortgages and sell them en masse to
unsuspecting insurance companies and pension funds.
This created a mass market for toxic debt that would never
have existed before; in the old days, no bank would have
wanted to keep some addict ex-con's mortgage on its
books, knowing how likely it was to fail. You can't write
these mortgages, in other words, unless you can sell them
to someone who doesn't know what they are.
Goldman used two methods to hide the mess they were

selling. First, they bundled hundreds of diferent mortgages

into instruments called Collateralized Debt Obligations.
Then they sold investors on the idea that, because a bunch
of those mortgages would turn out to be OK, there was no
reason to worry so much about the shitty ones: The CDO,
as a whole, was sound. Thus, junk-rated mortgages were
turned into AAA-rated investments. Second, to hedge its
own bets, Goldman got companies like AIG to provide
insurance known as credit default swaps on the
CDOs. The swaps were essentially a racetrack bet between
AIG and Goldman: Goldman is betting the ex-cons will
default, AIG is betting they won't.
There was only one problem with the deals: All of the
wheeling and dealing represented exactly the kind of
dangerous speculation that federal regulators are
supposed to rein in. Derivatives like CDOs and credit
swaps had already caused a series of serious financial
calamities: Procter & Gamble and Gibson Greetings both
lost fortunes, and Orange County, California, was forced to
default in 1994. A report that year by the Government
Accountability Office recommended that such financial
instruments be tightly regulated and in 1998, the head
of the Commodity Futures Trading Commission, a woman
named Brooksley Born, agreed. That May, she circulated a
letter to business leaders and the Clinton administration
suggesting that banks be required to provide greater
disclosure in derivatives trades, and maintain reserves to
cushion against losses.
More regulation wasnt exactly what Goldman had in mind.
The banks go crazy they want it stopped, says Michael
Greenberger, who worked for Born as director of trading
and markets at the CFTC and is now a law professor at the
University of Maryland. Greenspan, Summers, Rubin and
[SEC chief Arthur] Levitt want it stopped.
Clinton's reigning economic foursome especially
Rubin, according to Greenberger called Born in for a
meeting and pleaded their case. She refused to back
down, however, and continued to push for more regulation
of the derivatives. Then, in June 1998, Rubin went public to

denounce her move, eventually recommending that

Congress strip the CFTC of its regulatory authority. In 2000,
on its last day in session, Congress passed the nownotorious Commodity Futures Modernization Act, which
had been inserted into an 11,000-page spending bill at the
last minute, with almost no debate on the floor of the
Senate. Banks were now free to trade default swaps with
But the story didn't end there. AIG, a major purveyor of
default swaps, approached the New York State Insurance
Department in 2000 and asked whether default swaps
would be regulated as insurance. At the time, the office
was run by one Neil Levin, a former Goldman vice
president, who decided against regulating the swaps. Now
freed to underwrite as many housing-based securities and
buy as much credit-default protection as it wanted,
Goldman went berserk with lending lust. By the peak of
the housing boom in 2006, Goldman was underwriting
$76.5 billion worth of mortgage-backed securities a
third of which were sub-prime much of it to institutional
investors like pensions and insurance companies. And in
these massive issues of real estate were vast swamps of
Take one $494 million issue that year, GSAMP Trust
2006S3. Many of the mortgages belonged to secondmortgage borrowers, and the average equity they had in
their homes was 0.71 percent. Moreover, 58 percent of the
loans included little or no documentation no names of
the borrowers, no addresses of the homes, just zip codes.
Yet both of the major ratings agencies, Moody's and
Standard & Poor's, rated 93 percent of the issue as
investment grade. Moody's projected that less than 10
percent of the loans would default. In reality, 18 percent of
the mortgages were in default within 18 months.
Not that Goldman was personally at any risk. The bank
might be taking all these hideous, completely irresponsible
mortgages from beneath-gangster-status firms like
Countrywide and selling them of to municipalities and
pensioners old people, for God's sake pretending the

whole time that it wasn't grade D horseshit. But even as it

was doing so, it was taking short positions in the same
market, in essence betting against the same crap it was
selling. Even worse, Goldman bragged about it in public.
"The mortgage sector continues to be challenged," David
Viniar, the bank's chief financial officer, boasted in 2007.
"As a result, we took significant markdowns on our long
inventory positions However, our risk bias in that market
was to be short, and that net short position was
profitable." In other words, the mortgages it was selling
were for chumps. The real money was in betting against
those same mortgages.
"That's how audacious these assholes are," says one
hedge fund manager. "At least with other banks, you could
say that they were just dumb they believed what they
were selling, and it blew them up. Goldman knew what it
was doing."
I ask the manager how it could be that selling something
to customers that you're actually betting against
particularly when you know more about the weaknesses of
those products than the customer doesn't amount to
securities fraud.
"It's exactly securities fraud," he says. "It's the heart of
securities fraud."
Eventually, lots of aggrieved investors agreed. In a virtual
repeat of the Internet IPO craze, Goldman was hit with a
wave of lawsuits after the collapse of the housing bubble,
many of which accused the bank of withholding pertinent
information about the quality of the mortgages it issued.
New York state regulators are suing Goldman and 25 other
underwriters for selling bundles of crappy Countrywide
mortgages to city and state pension funds, which lost as
much as $100 million in the investments. Massachusetts
also investigated Goldman for similar misdeeds, acting on
behalf of 714 mortgage holders who got stuck holding
predatory loans. But once again, Goldman got of virtually
scot-free, staving of prosecution by agreeing to pay a
paltry $60 million about what the bank's CDO division
made in a day and a half during the real estate boom.

The efects of the housing bubble are well known it led

more or less directly to the collapse of Bear Stearns,
Lehman Brothers and AIG, whose toxic portfolio of credit
swaps was in significant part composed of the insurance
that banks like Goldman bought against their own housing
portfolios. In fact, at least $13 billion of the taxpayer
money given to AIG in the bailout ultimately went to
Goldman, meaning that the bank made out on the housing
bubble twice: It fucked the investors who bought their
horseshit CDOs by betting against its own crappy product,
then it turned around and fucked the taxpayer by making
him pay of those same bets.
And once again, while the world was crashing down all
around the bank, Goldman made sure it was doing just fine
in the compensation department. In 2006, the firm's
payroll jumped to $16.5 billion an average of $622,000
per employee. As a Goldman spokesman explained, "We
work very hard here."
But the best was yet to come. While the collapse of the
housing bubble sent most of the financial world fleeing for
the exits, or to jail, Goldman boldly doubled down and
almost single-handedly created yet another bubble, one
the world still barely knows the firm had anything to do
BUBBLE #4 $4 a Gallon
By the beginning of 2008, the financial world was in
turmoil. Wall Street had spent the past two and a half
decades producing one scandal after another, which didn't
leave much to sell that wasn't tainted. The terms junk
bond, IPO, sub-prime mortgage and other once-hot
financial fare were now firmly associated in the public's
mind with scams; the terms credit swaps and CDOs were
about to join them. The credit markets were in crisis, and
the mantra that had sustained the fantasy economy
throughout the Bush years the notion that housing
prices never go down was now a fully exploded myth,
leaving the Street clamoring for a new bullshit paradigm to
Where to go? With the public reluctant to put money in

anything that felt like a paper investment, the Street

quietly moved the casino to the physical-commodities
market stuf you could touch: corn, cofee, cocoa, wheat
and, above all, energy commodities, especially oil. In
conjunction with a decline in the dollar, the credit crunch
and the housing crash caused a "flight to commodities."
Oil futures in particular skyrocketed, as the price of a
single barrel went from around $60 in the middle of 2007
to a high of $147 in the summer of 2008.
That summer, as the presidential campaign heated up, the
accepted explanation for why gasoline had hit $4.11 a
gallon was that there was a problem with the world oil
supply. In a classic example of how Republicans and
Democrats respond to crises by engaging in fierce
exchanges of moronic irrelevancies, John McCain insisted
that ending the moratorium on ofshore drilling would be
"very helpful in the short term," while Barack Obama in
typical liberal-arts yuppie style argued that federal
investment in hybrid cars was the way out.
But it was all a lie. While the global supply of oil will
eventually dry up, the short-term flow has actually been
increasing. In the six months before prices spiked,
according to the U.S. Energy Information Administration,
the world oil supply rose from 85.24 million barrels a day
to 85.72 million. Over the same period, world oil demand
dropped from 86.82 million barrels a day to 86.07 million.
Not only was the short-term supply of oil rising, the
demand for it was falling which, in classic economic
terms, should have brought prices at the pump down.
So what caused the huge spike in oil prices? Take a wild
guess. Obviously Goldman had help there were other
players in the physical commodities market but the root
cause had almost everything to do with the behavior of a
few powerful actors determined to turn the once-solid
market into a speculative casino. Goldman did it by
persuading pension funds and other large institutional
investors to invest in oil futures agreeing to buy oil at a
certain price on a fixed date. The push transformed oil
from a physical commodity, rigidly subject to supply and

demand, into something to bet on, like a stock. Between

2003 and 2008, the amount of speculative money in
commodities grew from $13 billion to $317 billion, an
increase of 2,300 percent. By 2008, a barrel of oil was
traded 27 times, on average, before it was actually
delivered and consumed.
As is so often the case, there had been a Depression-era
law in place designed specifically to prevent this sort of
thing. The commodities market was designed in large part
to help farmers: A grower concerned about future price
drops could enter into a contract to sell his corn at a
certain price for delivery later on, which made him worry
less about building up stores of his crop. When no one was
buying corn, the farmer could sell to a middleman known
as a "traditional speculator," who would store the grain
and sell it later, when demand returned. That way,
someone was always there to buy from the farmer, even
when the market temporarily had no need for his crops.
In 1936, however, Congress recognized that there should
never be more speculators in the market than real
producers and consumers. If that happened, prices would
be afected by something other than supply and demand,
and price manipulations would ensue. A new law
empowered the Commodity Futures Trading Commission
the very same body that would later try and fail to
regulate credit swaps to place limits on speculative
trades in commodities. As a result of the CFTC's oversight,
peace and harmony reigned in the commodities markets
for more than 50 years.
All that changed in 1991 when, unbeknownst to almost
everyone in the world, a Goldman-owned commoditiestrading subsidiary called J. Aron wrote to the CFTC and
made an unusual argument. Farmers with big stores of
corn, Goldman argued, weren't the only ones who needed
to hedge their risk against future price drops Wall Street
dealers who made big bets on oil prices also needed to
hedge their risk, because, well, they stood to lose a lot too.
This was complete and utter crap the 1936 law,
remember, was specifically designed to maintain

distinctions between people who were buying and selling

real tangible stuf and people who were trading in paper
alone. But the CFTC, amazingly, bought Goldman's
argument. It issued the bank a free pass, called the "Bona
Fide Hedging" exemption, allowing Goldman's subsidiary to
call itself a physical hedger and escape virtually all limits
placed on speculators. In the years that followed, the
commission would quietly issue 14 similar exemptions to
other companies.
Now Goldman and other banks were free to drive more
investors into the commodities markets, enabling
speculators to place increasingly big bets. That 1991 letter
from Goldman more or less directly led to the oil bubble in
2008, when the number of speculators in the market
driven there by fear of the falling dollar and the housing
crash finally overwhelmed the real physical suppliers
and consumers. By 2008, at least three quarters of the
activity on the commodity exchanges was speculative,
according to a congressional stafer who studied the
numbers and that's likely a conservative estimate. By
the middle of last summer, despite rising supply and a
drop in demand, we were paying $4 a gallon every time we
pulled up to the pump.
What is even more amazing is that the letter to Goldman,
along with most of the other trading exemptions, was
handed out more or less in secret. "I was the head of the
division of trading and markets, and Brooksley Born was
the chair of the CFTC," says Greenberger, "and neither of
us knew this letter was out there." In fact, the letters only
came to light by accident. Last year, a stafer for the
House Energy and Commerce Committee just happened to
be at a briefing when officials from the CFTC made an
ofhand reference to the exemptions.
"I had been invited to a briefing the commission was
holding on energy," the stafer recounts. "And suddenly in
the middle of it, they start saying, 'Yeah, we've been
issuing these letters for years now.' I raised my hand and
said, 'Really? You issued a letter? Can I see it?' And they
were like, 'Duh, duh.' So we went back and forth, and

finally they said, 'We have to clear it with Goldman Sachs.'

I'm like, 'What do you mean, you have to clear it with
Goldman Sachs?'"
The CFTC cited a rule that prohibited it from releasing any
information about a company's current position in the
market. But the stafer's request was about a letter that
had been issued 17 years earlier. It no longer had anything
to do with Goldman's current position. What's more,
Section 7 of the 1936 commodities law gives Congress the
right to any information it wants from the commission.
Still, in a classic example of how complete Goldman's
capture of government is, the CFTC waited until it got
clearance from the bank before it turned the letter over.
Armed with the semi-secret government exemption,
Goldman had become the chief designer of a giant
commodities betting parlor. Its Goldman Sachs
Commodities Index which tracks the prices of 24 major
commodities but is overwhelmingly weighted toward oil
became the place where pension funds and insurance
companies and other institutional investors could make
massive long-term bets on commodity prices. Which was
all well and good, except for a couple of things. One was
that index speculators are mostly "long only" bettors, who
seldom if ever take short positions meaning they only
bet on prices to rise. While this kind of behavior is good for
a stock market, it's terrible for commodities, because it
continually forces prices upward. "If index speculators took
short positions as well as long ones, you'd see them
pushing prices both up and down," says Michael Masters, a
hedge fund manager who has helped expose the role of
investment banks in the manipulation of oil prices. "But
they only push prices in one direction: up."
Complicating matters even further was the fact that
Goldman itself was cheerleading with all its might for an
increase in oil prices. In the beginning of 2008, Arjun Murti,
a Goldman analyst, hailed as an "oracle of oil" by The New
York Times, predicted a "super spike" in oil prices,
forecasting a rise to $200 a barrel. At the time Goldman
was heavily invested in oil through its commodities trading

subsidiary, J. Aron; it also owned a stake in a major oil

refinery in Kansas, where it warehoused the crude it
bought and sold. Even though the supply of oil was
keeping pace with demand, Murti continually warned of
disruptions to the world oil supply, going so far as to
broadcast the fact that he owned two hybrid cars. High
prices, the bank insisted, were somehow the fault of the
piggish American consumer; in 2005, Goldman analysts
insisted that we wouldn't know when oil prices would fall
until we knew "when American consumers will stop buying
gas-guzzling sport utility vehicles and instead seek fuelefficient alternatives."
But it wasn't the consumption of real oil that was driving
up prices it was the trade in paper oil. By the summer of
2008, in fact, commodities speculators had bought and
stockpiled enough oil futures to fill 1.1 billion barrels of
crude, which meant that speculators owned more future oil
on paper than there was real, physical oil stored in all of
the country's commercial storage tanks and the Strategic
Petroleum Reserve combined. It was a repeat of both the
Internet craze and the housing bubble, when Wall Street
jacked up present-day profits by selling suckers shares of a
fictional fantasy future of endlessly rising prices.
In what was by now a painfully familiar pattern, the oilcommodities melon hit the pavement hard in the summer
of 2008, causing a massive loss of wealth; crude prices
plunged from $147 to $33. Once again the big losers were
ordinary people. The pensioners whose funds invested in
this crap got massacred: CalPERS, the California Public
Employees' Retirement System, had $1.1 billion in
commodities when the crash came. And the damage didn't
just come from oil. Soaring food prices driven by the
commodities bubble led to catastrophes across the planet,
forcing an estimated 100 million people into hunger and
sparking food riots throughout the Third World.
Now oil prices are rising again: They shot up 20 percent in
the month of May and have nearly doubled so far this year.
Once again, the problem is not supply or demand. "The
highest supply of oil in the last 20 years is now," says Rep.

Bart Stupak, a Democrat from Michigan who serves on the

House energy committee. "Demand is at a 10-year low.
And yet prices are up."
Asked why politicians continue to harp on things like
drilling or hybrid cars, when supply and demand have
nothing to do with the high prices, Stupak shakes his head.
"I think they just don't understand the problem very well,"
he says. "You can't explain it in 30 seconds, so politicians
ignore it."
BUBBLE #5 Rigging the Bailout
After the oil bubble collapsed last fall, there was no new
bubble to keep things humming this time, the money
seems to be really gone, like worldwide-depression gone.
So the financial safari has moved elsewhere, and the big
game in the hunt has become the only remaining pool of
dumb, unguarded capital left to feed upon: taxpayer
money. Here, in the biggest bailout in history, is where
Goldman Sachs really started to flex its muscle.
It began in September of last year, when then-Treasury
secretary Paulson made a momentous series of decisions.
Although he had already engineered a rescue of Bear
Stearns a few months before and helped bail out quasiprivate lenders Fannie Mae and Freddie Mac, Paulson
elected to let Lehman Brothers one of Goldman's last
real competitors collapse without intervention.
("Goldman's superhero status was left intact," says market
analyst Eric Salzman, "and an investment banking
competitor, Lehman, goes away.") The very next day,
Paulson green-lighted a massive, $85 billion bailout of AIG,
which promptly turned around and repaid $13 billion it
owed to Goldman. Thanks to the rescue efort, the bank
ended up getting paid in full for its bad bets: By contrast,
retired auto workers awaiting the Chrysler bailout will be
lucky to receive 50 cents for every dollar they are owed.
Immediately after the AIG bailout, Paulson announced his
federal bailout for the financial industry, a $700 billion plan
called the Troubled Asset Relief Program, and put a
heretofore unknown 35-year-old Goldman banker named
Neel Kashkari in charge of administering the funds. In

order to qualify for bailout monies, Goldman announced

that it would convert from an investment bank to a bank
holding company, a move that allows it access not only to
$10 billion in TARP funds, but to a whole galaxy of less
conspicuous, publicly backed funding most notably,
lending from the discount window of the Federal Reserve.
By the end of March, the Fed will have lent or guaranteed
at least $8.7 trillion under a series of new bailout programs
and thanks to an obscure law allowing the Fed to block
most congressional audits, both the amounts and the
recipients of the monies remain almost entirely secret.
Converting to a bank-holding company has other benefits
as well: Goldman's primary supervisor is now the New York
Fed, whose chairman at the time of its announcement was
Stephen Friedman, a former co-chairman of Goldman
Sachs. Friedman was technically in violation of Federal
Reserve policy by remaining on the board of Goldman even
as he was supposedly regulating the bank; in order to
rectify the problem, he applied for, and got, a conflict of
interest waiver from the government. Friedman was also
supposed to divest himself of his Goldman stock after
Goldman became a bank holding company, but thanks to
the waiver, he was allowed to go out and buy 52,000
additional shares in his old bank, leaving him $3 million
richer. Friedman stepped down in May, but the man now in
charge of supervising Goldman New York Fed president
William Dudley is yet another former Goldmanite.
The collective message of all this the AIG bailout, the
swift approval for its bank holding conversion, the TARP
funds is that when it comes to Goldman Sachs, there
isn't a free market at all. The government might let other
players on the market die, but it simply will not allow
Goldman to fail under any circumstances. Its edge in the
market has suddenly become an open declaration of
supreme privilege. "In the past it was an implicit
advantage," says Simon Johnson, an economics professor
at MIT and former official at the International Monetary
Fund, who compares the bailout to the crony capitalism he
has seen in Third World countries. "Now it's more of an

explicit advantage."
Once the bailouts were in place, Goldman went right back
to business as usual, dreaming up impossibly convoluted
schemes to pick the American carcass clean of its loose
capital. One of its first moves in the post-bailout era was to
quietly push forward the calendar it uses to report its
earnings, essentially wiping December 2008 with its
$1.3 billion in pretax losses of the books. At the same
time, the bank announced a highly suspicious $1.8 billion
profit for the first quarter of 2009 which apparently
included a large chunk of money funneled to it by
taxpayers via the AIG bailout. "They cooked those first
quarter results six ways from Sunday," says one hedge
fund manager. "They hid the losses in the orphan month
and called the bailout money profit."
Two more numbers stand out from that stunning firstquarter turnaround. The bank paid out an astonishing $4.7
billion in bonuses and compensation in the first three
months of this year, an 18 percent increase over the first
quarter of 2008. It also raised $5 billion by issuing new
shares almost immediately after releasing its first quarter
results. Taken together, the numbers show that Goldman
essentially borrowed a $5 billion salary payout for its
executives in the middle of the global economic crisis it
helped cause, using half-baked accounting to reel in
investors, just months after receiving billions in a taxpayer
Even more amazing, Goldman did it all right before the
government announced the results of its new "stress test"
for banks seeking to repay TARP money suggesting that
Goldman knew exactly what was coming. The government
was trying to carefully orchestrate the repayments in an
efort to prevent further trouble at banks that couldn't pay
back the money right away. But Goldman blew of those
concerns, brazenly flaunting its insider status. "They
seemed to know everything that they needed to do before
the stress test came out, unlike everyone else, who had to
wait until after," says Michael Hecht, a managing director
of JMP Securities. "The government came out and said, 'To

pay back TARP, you have to issue debt of at least five

years that is not insured by FDIC which Goldman Sachs
had already done, a week or two before."
And here's the real punch line. After playing an intimate
role in four historic bubble catastrophes, after helping $5
trillion in wealth disappear from the NASDAQ, after
pawning of thousands of toxic mortgages on pensioners
and cities, after helping to drive the price of gas up to $4 a
gallon and to push 100 million people around the world
into hunger, after securing tens of billions of taxpayer
dollars through a series of bailouts overseen by its former
CEO, what did Goldman Sachs give back to the people of
the United States in 2008?
Fourteen million dollars.
That is what the firm paid in taxes in 2008, an efective tax
rate of exactly one, read it, one percent. The bank paid out
$10 billion in compensation and benefits that same year
and made a profit of more than $2 billion yet it paid the
Treasury less than a third of what it forked over to CEO
Lloyd Blankfein, who made $42.9 million last year.
How is this possible? According to Goldman's annual
report, the low taxes are due in large part to changes in
the bank's "geographic earnings mix." In other words, the
bank moved its money around so that most of its earnings
took place in foreign countries with low tax rates. Thanks
to our completely fucked corporate tax system, companies
like Goldman can ship their revenues ofshore and defer
taxes on those revenues indefinitely, even while they claim
deductions upfront on that same untaxed income. This is
why any corporation with an at least occasionally sober
accountant can usually find a way to zero out its taxes. A
GAO report, in fact, found that between 1998 and 2005,
roughly two-thirds of all corporations operating in the U.S.
paid no taxes at all.
This should be a pitchfork-level outrage but somehow,
when Goldman released its post-bailout tax profile, hardly
anyone said a word. One of the few to remark on the
obscenity was Rep. Lloyd Doggett, a Democrat from Texas
who serves on the House Ways and Means Committee.

"With the right hand out begging for bailout money," he

said, "the left is hiding it ofshore."
BUBBLE #6 Global Warming
Fast-forward to today. It's early June in Washington, D.C.
Barack Obama, a popular young politician whose leading
private campaign donor was an investment bank called
Goldman Sachs its employees paid some $981,000 to
his campaign sits in the White House. Having
seamlessly navigated the political minefield of the bailout
era, Goldman is once again back to its old business,
scouting out loopholes in a new government-created
market with the aid of a new set of alumni occupying key
government jobs.
Gone are Hank Paulson and Neel Kashkari; in their place
are Treasury chief of staf Mark Patterson and CFTC chief
Gary Gensler, both former Goldmanites. (Gensler was the
firm's co-head of finance.) And instead of credit derivatives
or oil futures or mortgage-backed CDOs, the new game in
town, the next bubble, is in carbon credits a booming
trillion dollar market that barely even exists yet, but will if
the Democratic Party that it gave $4,452,585 to in the last
election manages to push into existence a groundbreaking
new commodities bubble, disguised as an "environmental
plan," called cap-and-trade.
The new carbon credit market is a virtual repeat of the
commodities-market casino that's been kind to Goldman,
except it has one delicious new wrinkle: If the plan goes
forward as expected, the rise in prices will be governmentmandated. Goldman won't even have to rig the game. It
will be rigged in advance.
Here's how it works: If the bill passes, there will be limits
for coal plants, utilities, natural-gas distributors and
numerous other industries on the amount of carbon
emissions (a.k.a. greenhouse gases) they can produce per
year. If the companies go over their allotment, they will be
able to buy "allocations" or credits from other companies
that have managed to produce fewer emissions. President
Obama conservatively estimates that about $646 billion
worth of carbon credits will be auctioned in the first seven

years; one of his top economic aides speculates that the

real number might be twice or even three times that
The feature of this plan that has special appeal to
speculators is that the "cap" on carbon will be continually
lowered by the government, which means that carbon
credits will become more and more scarce with each
passing year. Which means that this is a brand new
commodities market where the main commodity to be
traded is guaranteed to rise in price over time. The volume
of this new market will be upwards of a trillion dollars
annually; for comparison's sake, the annual combined
revenues of all electricity suppliers in the U.S. total $320
Goldman wants this bill. The plan is (1) to get in on the
ground floor of paradigm-shifting legislation, (2) make sure
that they're the profit-making slice of that paradigm and
(3) make sure the slice is a big slice. Goldman started
pushing hard for cap-and-trade long ago, but things really
ramped up last year when the firm spent $3.5 million to
lobby climate issues. (One of their lobbyists at the time
was none other than Patterson, now Treasury chief of
staf.) Back in 2005, when Hank Paulson was chief of
Goldman, he personally helped author the bank's
environmental policy, a document that contains some
surprising elements for a firm that in all other areas has
been consistently opposed to any sort of government
regulation. Paulson's report argued that "voluntary action
alone cannot solve the climate change problem." A few
years later, the bank's carbon chief, Ken Newcombe,
insisted that cap-and-trade alone won't be enough to fix
the climate problem and called for further public
investments in research and development. Which is
convenient, considering that Goldman made early
investments in wind power (it bought a subsidiary called
Horizon Wind Energy), renewable diesel (it is an investor in
a firm called Changing World Technologies) and solar
power (it partnered with BP Solar), exactly the kind of
deals that will prosper if the government forces energy

producers to use cleaner energy. As Paulson said at the

time, "We're not making those investments to lose money."
The bank owns a 10 percent stake in the Chicago Climate
Exchange, where the carbon credits will be traded.
Moreover, Goldman owns a minority stake in Blue Source
LLC, a Utah-based firm that sells carbon credits of the type
that will be in great demand if the bill passes. Nobel Prize
winner Al Gore, who is intimately involved with the
planning of cap-and-trade, started up a company called
Generation Investment Management with three former
bigwigs from Goldman Sachs Asset Management, David
Blood, Mark Ferguson and Peter Harris. Their business?
Investing in carbon ofsets. There's also a $500 million
Green Growth Fund set up by a Goldmanite to invest in
green-tech the list goes on and on. Goldman is ahead of
the headlines again, just waiting for someone to make it
rain in the right spot. Will this market be bigger than the
energy futures market?
"Oh, it'll dwarf it," says a former stafer on the House
energy committee.
Well, you might say, who cares? If cap-and-trade succeeds,
won't we all be saved from the catastrophe of global
warming? Maybe but cap-and-trade, as envisioned by
Goldman, is really just a carbon tax structured so that
private interests collect the revenues. Instead of simply
imposing a fixed government levy on carbon pollution and
forcing unclean energy producers to pay for the mess they
make, cap-and-trade will allow a small tribe of greedy-ashell Wall Street swine to turn yet another commodities
market into a private tax collection scheme. This is worse
than the bailout: It allows the bank to seize taxpayer
money before it's even collected.
"If it's going to be a tax, I would prefer that Washington set
the tax and collect it," says Michael Masters, the hedge
fund director who spoke out against oil futures speculation.
"But we're saying that Wall Street can set the tax, and Wall
Street can collect the tax. That's the last thing in the world
I want. It's just asinine."
Cap-and-trade is going to happen. Or, if it doesn't,

something like it will. The moral is the same as for all the
other bubbles that Goldman helped create, from 1929 to
2009. In almost every case, the very same bank that
behaved recklessly for years, weighing down the system
with toxic loans and predatory debt, and accomplishing
nothing but massive bonuses for a few bosses, has been
rewarded with mountains of virtually free money and
government guarantees while the actual victims in this
mess, ordinary taxpayers, are the ones paying for it.
It's not always easy to accept the reality of what we now
routinely allow these people to get away with; there's a
kind of collective denial that kicks in when a country goes
through what America has gone through lately, when a
people lose as much prestige and status as we have in the
past few years. You can't really register the fact that you're
no longer a citizen of a thriving first-world democracy, that
you're no longer above getting robbed in broad daylight,
because like an amputee, you can still sort of feel things
that are no longer there.
But this is it. This is the world we live in now. And in this
world, some of us have to play by the rules, while others
get a note from the principal excusing them from
homework till the end of time, plus 10 billion free dollars in
a paper bag to buy lunch. It's a gangster state, running on
gangster economics, and even prices can't be trusted
anymore; there are hidden taxes in every buck you pay.
And maybe we can't stop it, but we should at least know
where it's all going.
On the surface, the failure-to-disclose rap being leveled at
Goldman feels like a niggling technicality, the Wall Street
equivalent of a tax-evasion charge against Al Capone. The
bank will try and who knows might even succeed in
defending itself in a court of law against these charges.
But in the court of public opinion it was doomed the instant
the SEC decided to put this ghastly black comedy of a
fraud case on the street for everyone to see. Just as
Pittsburgh Steeler Ben Roethlisberger will never recover
from the image of him (allegedly) waving his dick at a

scared 20-year-old coed in the darkened hallway of a

Georgia nightclub, Goldman may never bounce back from
the SEC's brutal blow-by-blow account of how the bank
conspired with a hedge-fund magnate to bend one gullible
business partner after another over the edge of the
subprime housing market.
Here's the CliffsNotes version of the scandal: Back in 2007,
Harvard-educated hedge-fund whiz John Paulson (no
relation to then-Treasury secretary and former Goldman
chief Hank Paulson) smartly decided the housing boom
was a mirage. So he asked Goldman to put together a
multibillion-dollar basket of crappy subprime investments
that he could bet against. The bank gladly complied,
taking a $15 million fee to do the deal and letting Paulson
choose some of the toxic mortgages in the portfolio, which
would come to be called Abacus.
Why Isn't Wall Street in Jail?
What Paulson jammed into Abacus was mortgages lent to
borrowers with low credit ratings, and mortgages from
states like Florida, Arizona, Nevada and California that had
recently seen wild home-price spikes. In metaphorical
terms, Paulson was choosing, as sexual partners for future
visitors to the Goldman bordello, a gang of IV drug users,
Haitians and hemophiliacs, then buying life-insurance
policies on the whole orgy. Goldman then turned around
and sold this poisonous stuf to its customers as good,
healthy investments.
Where Goldman broke the rules, according to the SEC, was
in failing to disclose to its customers in particular a
German bank called IKB and a Dutch bank called ABNAMRO the full nature of Paulson's involvement with the
deal. Neither investor knew that the portfolio they were
buying into had essentially been put together by a
financial arsonist who was rooting for it all to blow up.
Wall Street's War
Goldman even kept its own collateral manager a wellknown and respectable company called ACA in the dark.
The bank hired the firm to approve the bad mortgages

being selected by Paulson, but never bothered to tell ACA

that Paulson was actually betting against the deal. ACA
thought Paulson was long, when actually he was short.
That led to the awful comedy of ACA stafers holding
meeting after meeting with Goldman and Paulson, and
continually coming away confused as to why their
supposedly canny financial partners kept kicking any
decent mortgage out of the deal. In one ACA internal email, the company wonders aloud why Paulson excluded
mortgages issued by Wells Fargo a bank that traditionally
created high-quality mortgages. "Did [they] give a reason
why they kicked out all the Wells deals?" the quizzical email reads.
The climactic scene of this absurd vaudeville came on
February 2nd, 2007, when Goldman vice president Fabrice
Tourre a French-born slimeball who would be the only
Goldman individual named in the suit showed up with
Paulson & Co. at ACA's New York offices. At this meeting,
both Paulson's people and Tourre presumably pretended,
for the benefit of their sucker partner ACA, that they were
putting together a deal they actually believed in. One has
to imagine Tourre and the Paulson contingent overacting
with Shatnerian intensity to convince the numbskull ACA
guys that they really, really thought subprime mortgages
lent out to exurban Floridians with shit credit scores were
awesome investments. During the meeting, Tourre sent a
damning e-mail to another Goldman stafer: "I am at this
aca paulson meeting, this is surreal."
Tourre would brag in other e-mails that while the housing
market was about to blow up, his fabulous French self
would be left standing in a pile of money when it was all
over. "More and more leverage in the system," he wrote.
"The whole building is about to collapse anytime now. . . .
Only potential survivor, the fabulous Fab . . . standing in
the middle of all these complex, highly leveraged, exotic
trades he created!"
Get more political muckraking from Matt Taibbi on his blog,
These flighty Tourre e-mails boasting of cashing in on a

disaster and chuckling over the "surreal" experience of

power-lying right in the face of a business partner are
Goldman's very own Ben Roethlisberger drunken dickwaving moment. It is hard to imagine any company from
now on doing business with Goldman and not picturing its
fruitcake executives text-boasting to each other about the
pleasures of screwing over their own clients.
Goldman has issued three denials with regard to the SEC
charges. The first was a very curt "this is all bullshit" press
release, issued on the day the complaint came out, in
which it called the charges "completely unfounded in law."
Then, after their PR people had a few minutes to think
about things, Goldman issued a second release claiming
that it lost $90 million on the deal, and therefore couldn't
have been doing anything wrong. While this may be true
and we only have their word for it that it is who the hell
cares? What Goldman is being accused of is lying to its
clients. How much money they did or didn't make is totally
irrelevant. In fact, if Goldman really did lose money
knowing what they knew about this deal, all that proves is
that they're morons as well as sleazebags.
The third press release paved the way for the inevitable
deployment of the Dr. Richard Kimble/one-armed-man
defense i.e., that Fabrice Tourre did it all, acting alone.
"Goldman Sachs would never condone one of its
employees misleading anyone," the release insisted. "Were
there ever to emerge credible evidence that such behavior
indeed occurred here, we would be the first to condemn it
and to take all appropriate actions."
So within the space of a few days, Goldman issued three
diferent explanations, which progressed from (a) we
absolutely, positively didn't do it, to (b) if we did do it, we
didn't make any money doing it, and finally on to (c) if
somebody did it, it was only that French cat Tourre, and
here's his head if you want it. These guys couldn't find the
truth if it was sitting in theirlap playing the ukulele, and
that's the basic problem that the entire financial-services
sector an industry that requires trust and confidence to
thrive is struggling to overcome.

Just under a year ago, when we published "The Great

American Bubble Machine" [RS 1082/1083], accusing
Goldman of betting against its clients at the end of the
housing boom, virtually the entire smugtocracy of sneering
Wall Street cognoscenti scofed at the notion that the
Street's leading investment bank could be guilty of such a
thing. Attracting particular derision were the comments of
one of my sources, a prominent hedge-fund chief, who said
that when Goldman shorted the subprime-mortgage
market at the same time it was selling subprime-backed
products to its customers, the bait-and-switch maneuver
constituted "the heart of securities fraud."
CNBC's house blowhard, Charlie Gasparino, laughed at the
"securities fraud" line, saying, "Try proving that one." The
Atlantic's online Randian cyber-shill, Megan McArdle, said
Rolling Stone had "absurdly" accused Goldman of
committing a crime, arguing that "Goldman's customers
for CDOs are not little grannies who think a bond coupon is
what you use to buy denture glue." Former Wall Street
Journal reporter Heidi Moore hilariously pointed out that
Goldman wasn't the only one betting against the housing
market, citing the short-selling success of you guessed it
John Paulson as evidence that Goldman shouldn't be
singled out.
The truth is that what Goldman is alleged to have done in
this SEC case is even worse than what all these assholes
laughed at us for talking about last year.
Prior to the "Bubble Machine" piece, I had heard rumors
that Goldman had gone out and intentionally scared up
toxic mortgages and swaps in order to get short of them
with sucker bookies like AIG. But and this seems funny in
retrospect I foolishly dismissed those tales as being too
conspiratorial. I thought it was bad enough that Goldman
was shorting the subprime market even as it was selling
toxic subprime-backed securities to chumps on the open
market. The notion that the bank would actually go out
and create big balls of crap that would be designed to fail
seemed too nuts even for my tastes.

In the year since and this, to me, is the main lesson from
the SEC case against Goldman the public has quickly
come to accept that when it comes to the once-great
institutions of modern Wall Street, literally no deal that
makes money is too low to be contemplated.
The nearly identical case involving a Merrill Lynch
mortgage deal called Norma now making its way through
the courts is just one example. There is more fraud out
there, and everyone knows it: front-running, manipulation
of the commodities markets, trading ahead of interest-rate
moves, hidden losses, Enron-esque accounting, Ponzi
schemes in the precious-metals markets, you name it. We
gave these people nearly a trillion bailout dollars, and no
one knows what service they actually provide beyond
fraud, gross self-indulgence and the occasional
transparently insincere public apology.
The Goldman case emerges as a symbol of all this
brokenness, of a climate in which all financial actors are
now supposed to expect to be burned and cheated, even
by their own bankers, as a matter of course. (As part of its
defense, Goldman pointed out that IKB is a "sophisticated
CDO market participant" translation: too fucking bad for
them if they trusted us.) It would be nice to think that the
SEC suit is aimed at this twisted worldview as much as at
the actual ofense. Some observers believe the case
against Goldman was timed to pressure Wall Street into
acquiescing to Sen. Chris Dodd's loophole-ridden financialreform bill, which probably won't do much to prevent cases
like the Abacus fiasco. Or maybe it's just pure politics
Democrats dropping the proverbial horse's head in
Goldman's bed to get their fig-leaf financial-reform efort
passed in time for the midterm elections.
Whatever the long-range motives, the immediate efect of
the lawsuit is to put Wall Street's crazy fraud ethos on trial
in the court of public opinion. For now, at the end of the
first quarter, Goldman and most of the other big banks are
still winning that case. But the second quarter might be a
diferent story.

They achieve this using the same playbook over and over
again. The formula is relatively simple: Goldman positions
itself in the middle of a speculative bubble, selling
investments they know are crap. Then they hoover up vast
sums from the middle and lower floors of society with the
aid of a crippled and corrupt state that allows it to rewrite
the rules in exchange for the relative pennies the bank
throws at political patronage. Finally, when it all goes bust,
leaving millions of ordinary citizens broke and starving,
they begin the entire process over again, riding in to
rescue us all by lending us back our own money at
interest, selling themselves as men above greed, just a
bunch of really smart guys keeping the wheels greased.
They've been pulling this same stunt over and over since
the 1920s and now they're preparing to do it again,
creating what may be the biggest and most audacious
bubble yet.
If you want to understand how we got into this financial
crisis, you have to first understand where all the money
went and in order to understand that, you need to
understand what Goldman has already gotten away with. It
is a history exactly five bubbles long including last
year's strange and seemingly inexplicable spike in the
price of oil. There were a lot of losers in each of those
bubbles, and in the bailout that followed. But Goldman
wasn't one of them.
BUBBLE #1 The Great Depression
Goldman wasn't always a too-big-to-fail Wall Street
behemoth, the ruthless face of kill-or-be-killed capitalism
on steroids just almost always. The bank was actually
founded in 1869 by a German immigrant named Marcus
Goldman, who built it up with his son-in-law Samuel Sachs.
They were pioneers in the use of commercial paper, which
is just a fancy way of saying they made money lending out
short-term IOUs to smalltime vendors in downtown
You can probably guess the basic plotline of Goldman's

first 100 years in business: plucky, immigrant-led

investment bank beats the odds, pulls itself up by its
bootstraps, makes shitloads of money. In that ancient
history there's really only one episode that bears scrutiny
now, in light of more recent events: Goldmans disastrous
foray into the speculative mania of pre-crash Wall Street in
the late 1920s.
Wall Street's Big Win
This great Hindenburg of financial history has a few
features that might sound familiar. Back then, the main
financial tool used to bilk investors was called an
"investment trust." Similar to modern mutual funds, the
trusts took the cash of investors large and small and
(theoretically, at least) invested it in a smorgasbord of Wall
Street securities, though the securities and amounts were
often kept hidden from the public. So a regular guy could
invest $10 or $100 in a trust and feel like he was a big
player. Much as in the 1990s, when new vehicles like day
trading and e-trading attracted reams of new suckers from
the sticks who wanted to feel like big shots, investment
trusts roped a new generation of regular-guy investors into
the speculation game.
Beginning a pattern that would repeat itself over and over
again, Goldman got into the investmenttrust game late,
then jumped in with both feet and went hogwild. The first
efort was the Goldman Sachs Trading Corporation; the
bank issued a million shares at $100 apiece, bought all
those shares with its own money and then sold 90 percent
of them to the hungry public at $104. The trading
corporation then relentlessly bought shares in itself,
bidding the price up further and further. Eventually it
dumped part of its holdings and sponsored a new trust, the
Shenandoah Corporation, issuing millions more in shares in
that fund which in turn sponsored yet another trust
called the Blue Ridge Corporation. In this way, each
investment trust served as a front for an endless
investment pyramid: Goldman hiding behind Goldman
hiding behind Goldman. Of the 7,250,000 initial shares of
Blue Ridge, 6,250,000 were actually owned by

Shenandoah which, of course, was in large part owned

by Goldman Trading.
Taibblog: Commentary on politics and the economy by
Matt Taibbi
The end result (ask yourself if this sounds familiar) was a
daisy chain of borrowed money, one exquisitely vulnerable
to a decline in performance anywhere along the line. The
basic idea isn't hard to follow. You take a dollar and borrow
nine against it; then you take that $10 fund and borrow
$90; then you take your $100 fund and, so long as the
public is still lending, borrow and invest $900. If the last
fund in the line starts to lose value, you no longer have the
money to pay back your investors, and everyone gets
In a chapter from The Great Crash, 1929 titled "In Goldman
Sachs We Trust," the famed economist John Kenneth
Galbraith held up the Blue Ridge and Shenandoah trusts as
classic examples of the insanity of leveragebased
investment. The trusts, he wrote, were a major cause of
the market's historic crash; in today's dollars, the losses
the bank sufered totaled $475 billion. "It is difficult not to
marvel at the imagination which was implicit in this
gargantuan insanity," Galbraith observed, sounding like
Keith Olbermann in an ascot. "If there must be madness,
something may be said for having it on a heroic scale."
Read more:
BUBBLE #2 Tech Stocks
Fast-forward about 65 years. Goldman not only survived
the crash that wiped out so many of the investors it duped,
it went on to become the chief underwriter to the country's
wealthiest and most powerful corporations. Thanks to
Sidney Weinberg, who rose from the rank of janitor's
assistant to head the firm, Goldman became the pioneer of

the initial public ofering, one of the principal and most

lucrative means by which companies raise money. During
the 1970s and 1980s, Goldman may not have been the
planet-eating Death Star of political influence it is today,
but it was a top-drawer firm that had a reputation for
attracting the very smartest talent on the Street.
It also, oddly enough, had a reputation for relatively solid
ethics and a patient approach to investment that shunned
the fast buck; its executives were trained to adopt the
firm's mantra, "long-term greedy." One former Goldman
banker who left the firm in the early Nineties recalls seeing
his superiors give up a very profitable deal on the grounds
that it was a long-term loser. "We gave back money to
'grownup' corporate clients who had made bad deals with
us," he says. "Everything we did was legal and fair but
'long-term greedy' said we didn't want to make such a
profit at the clients' collective expense that we spoiled the
But then, something happened. It's hard to say what it was
exactly; it might have been the fact that Goldman's
cochairman in the early Nineties, Robert Rubin, followed
Bill Clinton to the White House, where he directed the
National Economic Council and eventually became
Treasury secretary. While the American media fell in love
with the story line of a pair of baby-boomer, Sixties-child,
Fleetwood Mac yuppies nesting in the White House, it also
nursed an undisguised crush on Rubin, who was hyped as
without a doubt the smartest person ever to walk the face
of the Earth, with Newton, Einstein, Mozart and Kant
running far behind.
Rubin was the prototypical Goldman banker. He was
probably born in a $4,000 suit, he had a face that seemed
permanently frozen just short of an apology for being so
much smarter than you, and he exuded a Spock-like,
emotion-neutral exterior; the only human feeling you could
imagine him experiencing was a nightmare about being
forced to fly coach. It became almost a national clich that
whatever Rubin thought was best for the economy a
phenomenon that reached its apex in 1999, when Rubin

appeared on the cover of Time with his Treasury deputy,

Larry Summers, and Fed chief Alan Greenspan under the
headline The Committee To Save The World. And "what
Rubin thought," mostly, was that the American economy,
and in particular the financial markets, were overregulated and needed to be set free. During his tenure at
Treasury, the Clinton White House made a series of moves
that would have drastic consequences for the global
economy beginning with Rubin's complete and total
failure to regulate hisold firm during its first mad dash for
obscene short-term profits.
The basic scam in the Internet Age is pretty easy even for
the financially illiterate to grasp. Companies that weren't
much more than potfueled ideas scrawled on napkins by
uptoolate bongsmokers were taken public via IPOs, hyped
in the media and sold to the public for mega-millions. It
was as if banks like Goldman were wrapping ribbons
around watermelons, tossing them out 50-story windows
and opening the phones for bids. In this game you were a
winner only if you took your money out before the melon
hit the pavement.
It sounds obvious now, but what the average investor
didn't know at the time was that the banks had changed
the rules of the game, making the deals look better than
they actually were. They did this by setting up what was,
in reality, a two-tiered investment system one for the
insiders who knew the real numbers, and another for the
lay investor who was invited to chase soaring prices the
banks themselves knew were irrational. While Goldman's
later pattern would be to capitalize on changes in the
regulatory environment, its key innovation in the Internet
years was to abandon its own industry's standards of
quality control.
"Since the Depression, there were strict underwriting
guidelines that Wall Street adhered to when taking a
company public," says one prominent hedge-fund
manager. "The company had to be in business for a
minimum of five years, and it had to show profitability for
three consecutive years. But Wall Street took these

guidelines and threw them in the trash." Goldman

completed the snow job by pumping up the sham stocks:
"Their analysts were out there saying is worth
$100 a share."
The problem was, nobody told investors that the rules had
changed. "Everyone on the inside knew," the manager
says. "Bob Rubin sure as hell knew what the underwriting
standards were. They'd been intact since the 1930s."
Jay Ritter, a professor of finance at the University of Florida
who specializes in IPOs, says banks like Goldman knew full
well that many of the public oferings they were touting
would never make a dime. "In the early Eighties, the major
underwriters insisted on three years of profitability. Then it
was one year, then it was a quarter. By the time of the
Internet bubble, they were not even requiring profitability
in the foreseeable future."
Read more:
Goldman has denied that it changed its underwriting
standards during the Internet years, but its own statistics
belie the claim. Just as it did with the investment trust in
the 1920s, Goldman started slow and finished crazy in the
Internet years. After it took a little-known company with
weak financials called Yahoo! public in 1996, once the tech
boom had already begun, Goldman quickly became the
IPO king of the Internet era. Of the 24 companies it took
public in 1997, a third were losing money at the time of
the IPO. In 1999, at the height of the boom, it took 47
companies public, including stillborns like Webvan and
eToys, investment oferings that were in many ways the
modern equivalents of Blue Ridge and Shenandoah. The
following year, it underwrote 18 companies in the first four
months, 14 of which were money losers at the time. As a
leading underwriter of Internet stocks during the boom,
Goldman provided profits far more volatile than those of its

competitors: In 1999, the average Goldman IPO leapt 281

percent above its ofering price, compared to the Wall
Street average of 181 percent.
How did Goldman achieve such extraordinary results? One
answer is that they used a practice called "laddering,"
which is just a fancy way of saying they manipulated the
share price of new oferings. Here's how it works: Say
you're Goldman Sachs, and comes to you and
asks you to take their company public. You agree on the
usual terms: You'll price the stock, determine how many
shares should be released and take the CEO
on a "road show" to schmooze investors, all in exchange
for a substantial fee (typically six to seven percent of the
amount raised). You then promise your best clients the
right to buy big chunks of the IPO at the low ofering price
let's say's starting share price is $15 in
exchange for a promise that they will buy more shares
later on the open market. That seemingly simple demand
gives you inside knowledge of the IPO's future, knowledge
that wasn't disclosed to the day trader schmucks who only
had the prospectus to go by: You know that certain of your
clients who bought X amount of shares at $15 are also
going to buy Y more shares at $20 or $25, virtually
guaranteeing that the price is going to go to $25 and
beyond. In this way, Goldman could artificially jack up the
new company's price, which of course was to the bank's
benefit a six percent fee of a $500 million IPO is serious
Goldman was repeatedly sued by shareholders for
engaging in laddering in a variety of Internet IPOs,
including Webvan and NetZero. The deceptive practices
also caught the attention of Nicholas Maier, the syndicate
manager of Cramer & Co., the hedge fund run at the time
by the now-famous chattering television asshole Jim
Cramer, himself a Goldman alum. Maier told the SEC that
while working for Cramer between 1996 and 1998, he was
repeatedly forced to engage in laddering practices during
IPO deals with Goldman.
"Goldman, from what I witnessed, they were the worst

perpetrator," Maier said. "They totally fueled the bubble.

And it's specifically that kind of behavior that has caused
the market crash. They built these stocks upon an illegal
foundation manipulated up and ultimately, it really
was the small person who ended up buying in." In 2005,
Goldman agreed to pay $40 million for its laddering
violations a puny penalty relative to the enormous
profits it made. (Goldman, which has denied wrongdoing in
all of the cases it has settled, refused to respond to
questions for this story.)
Another practice Goldman engaged in during the Internet
boom was "spinning," better known as bribery. Here the
investment bank would ofer the executives of the newly
public company shares at extra-low prices, in exchange for
future underwriting business. Banks that engaged in
spinning would then undervalue the initial ofering price
ensuring that those "hot" opening-price shares it had
handed out to insiders would be more likely to rise quickly,
supplying bigger first-day rewards for the chosen few. So
instead of opening at $20, the bank would
approach the CEO and ofer him a million
shares of his own company at $18 in exchange for future
business efectively robbing all of Bullshit's new
shareholders by diverting cash that should have gone to
the company's bottom line into the private bank account
of the company's CEO.
In one case, Goldman allegedly gave a multimillion-dollar
special ofering to eBay CEO Meg Whitman, who later
joined Goldman's board, in exchange for future i-banking
business. According to a report by the House Financial
Services Committee in 2002, Goldman gave special stock
oferings to executives in 21 companies that it took public,
including Yahoo! cofounder Jerry Yang and two of the great
slithering villains of the financial-scandal age Tyco's
Dennis Kozlowski and Enron's Ken Lay. Goldman angrily
denounced the report as "an egregious distortion of the
facts" shortly before paying $110 million to settle an
investigation into spinning and other manipulations
launched by New York state regulators. "The spinning of

hot IPO shares was not a harmless corporate perk," thenattorney general Eliot Spitzer said at the time. "Instead, it
was an integral part of a fraudulent scheme to win new
investment-banking business."
Such practices conspired to turn the Internet bubble into
one of the greatest financial disasters in world history:
Some $5 trillion of wealth was wiped out on the NASDAQ
alone. But the real problem wasn't the money that was lost
by shareholders, it was the money gained by investment
bankers, who received hefty bonuses for tampering with
the market. Instead of teaching Wall Street a lesson that
bubbles always deflate, the Internet years demonstrated
to bankers that in the age of freely flowing capital and
publicly owned financial companies, bubbles are incredibly
easy to inflate, and individual bonuses are actually bigger
when the mania and the irrationality are greater.
Nowhere was this truer than at Goldman. Between 1999
and 2002, the firm paid out $28.5 billion in compensation
and benefits an average of roughly $350,000 a year per
employee. Those numbers are important because the key
legacy of the Internet boom is that the economy is now
driven in large part by the pursuit of the enormous salaries
and bonuses that such bubbles make possible. Goldman's
mantra of "long-term greedy" vanished into thin air as the
game became about getting your check before the melon
hit the pavement.
The market was no longer a rationally managed place to
grow real, profitable businesses: It was a huge ocean of
Someone Else's Money where bankers hauled in vast sums
through whatever means necessary and tried to convert
that money into bonuses and payouts as quickly as
possible. If you laddered and spun 50 Internet IPOs that
went bust within a year, so what? By the time the
Securities and Exchange Commission got around to fining
your firm $110 million, the yacht you bought with your IPO
bonuses was already six years old. Besides, you were
probably out of Goldman by then, running the U.S.
Treasury or maybe the state of New Jersey. (One of the
truly comic moments in the history of America's recent

financial collapse came when Gov. Jon Corzine of New

Jersey, who ran Goldman from 1994 to 1999 and left with
$320 million in IPO-fattened stock, insisted in 2002 that
"I've never even heard the term 'laddering' before.")
For a bank that paid out $7 billion a year in salaries, $110
million fines issued half a decade late were something far
less than a deterrent they were a joke. Once the Internet
bubble burst, Goldman had no incentive to reassess its
new, profit-driven strategy; it just searched around for
another bubble to inflate. As it turns out, it had one ready,
thanks in large part to Rubin.
vampire squid - goldman sachs
the great vampire squid, cthulu bankster, valsim
bank = Baldface Facks
goldman sachs is the megalith bank-vamj says doing gods
tzu, sun - the art of war, book on valsim's shelf, pdf
The old adage, Where theres smoke, theres fire comes
to mind when pondering a new study published in the
Proceedings of the National Academy of Sciences which
found that the rich and privileged are more prone to
behave unethically-to lie, cheat and even take candy
from a childand to be more selfish drivers than those
who are less well of.
In one aspect of the multifaceted study, 129
undergraduates, both wealthy and poorer students, were
given a jar of individually wrapped candy. They were told
that the candy was meant for some children, but that they
could help themselves if they wanted any. The more wellof undergraduates felt freer to take more candy than
lower income participants, the study found. From ABC

Scientists at the University of California at Berkeley
analyzed a persons rank in society (measured by wealth,
occupational prestige and education) and found that those
who were richer were more likely to cheat, lie and break
the law than those who were poorer.
We found that it is much more prevalent for people in the
higher ranks of society to see greed and self-interest as
good pursuits, said Paul Pif, lead author of the study and
a doctoral candidate at Berkeley. This resonates with a lot
of current events these days.
In the first of two studies, researchers found that those
who drove more expensive cars (an admittedly
questionable indicator of economic worth) were more likely
to cut of other cars and pedestrians at a busy San
Francisco four-way intersection than those who drove
older, less-expensive vehicles.In other experiments,
wealthier study participants were more likely to admit they
would behave unethically in a variety of situations and lie
during negotiations. In another, researchers found
wealthier people were more likely to cheat in an online
game to win a $50 prize.
Greed is a robust determinant of unethical behavior,
according to the study.
This has some pretty clear implications, said Pif.
Inequality is very much on Americans minds, and the
potential efects of severe inequality on individual levels of
behavior are major.
Large sums of money may give people greater feelings of
entitlement, causing those people to be the most averse to
wealth distribution, Pif continued. Poorer people may be
less likely to cheat, because they are more dependent on
their community at large, he said. In other words, they
dont want to rock the boat.
Interesting. A right-winger would throw it back at you that
poorer neighborhoods are where the majority of crimes are
committed, but police are seldom brought in on matters of
white collar crimes, are they? Stats compiling the actual
damages of both types of crimes would be telling, but it

seems clear enough already that the oligarchy in America

would have a more out-sized influence than the car thief,
pick-pocket or even a small army of welfare cheats.
Compare even a murderer to Bernie Maddof and that much
still seems obvious.
People in power who are more inclined to behave
unethically in the service of gains and self-interest can
have great efects on society as a whole, said Pif.
And its difficult to say whether richer people get to the top
because of their unethical behavior or whether wealth
causes people to become this way. It seems like a vicious
cycle, he said.
Spoken like a scientist. Heres the take-away:
Pif said he hoped to further his research by figuring out
ways to curb these patterns of behavior among wealthier
Oh shit! He said it. The thing that you never, ever hear
discussed, because its forbidden to question the motives
and behaviors of the job creators in American society.
The cat is out of the bag. Weve got a diagnosis. Now
Personally, I cant WAIT until this one bubbles up as a topic
for Fox News talkers to become irate about. This could get
really good (and funny) if this study and Paul Pifs lightly
blunt comments get some traction in the news cycle. Id
love to know what Eric Bolling would make of this study,
wouldnt you? (Not because I can about what he thinks,
just for the yucks).
What it comes down to, really, is that money creates
more of a self-focus, which may account for larger feelings
of entitlement, said Pif. We hope to further study how
we can curb these patterns and how that will afect our
social environment.
The old adage the rich aren't like the rest of us
the rich don't live like the rest of us, and they don't die like

What to do about the rich?

We must make our choice. We may have democracy, or
we may have wealth concentrated in the hands of a few,
but we can't have both. (Justice Louis Brandeis)
The rich may be identified by their independence from and
command over others. Those two features make being rich
very pleasant indeed. But they are also what make the rich
bad for democracy, and indeed for capitalism. The
problems I'm concerned with are not about justice. Perhaps
it is unfair that some people are rich and others are poor,
and perhaps it would be fairer to redistribute wealth from
rich to poor, and from wealthy countries to poorer
countries. But from my perspective that resembles
debating the proper (re)arrangement of deck chairs. What
I'm concerned with is the sinking ship - the threat the rich
pose to liberalism itself by destroying its home: democratic
society. Though my examples and figures are mainly taken
from the American context, where the current debate
about wealth inequality is most extensive, my analysis
applies generally. Democracies are extended moral
communities whose flourishing and indeed survival depend
on the interdependence and equality of their members.
The rich not only have no place in this model, but their
very presence undermines it. Therefore, if we believe our
democracy is worth preserving, we should ofer the rich a
choice: give up your money or give up your membership of
our society.
The normative definition of the rich is always those who
have too much. Yet there are various ways of defining this,
usually in the language of liberal justice i.e. what is the
fairest way to arrange our society? Some take an
egalitarian distribution of wealth as the naturally just
distribution, and argue that deviations from that which lack
a specific moral justification are prima facie unjust, and the

greater the inequality, the greater the injustice. Others

focus on how the present concentrations of wealth in our
society are the legacy of a long history of theft and
extortion for which restitution is required (including
even libertarians, when they take seriously their
historical account of entitlement). Yet others focus on the
inefficiency of great inequality. The pop utilitarian, Peter
Singer, for example argues that ordinary middle-class
people in the west have much more than enough (anyone
with annual income over $35,000 is in the global 1%) while
a great many (around 2 billion) live in appalling absolute
poverty. So we middle-class types should give as much as
we can to meet the basic needs of the absolutely poor, at
least up to the point that we have to sacrifice something of
comparable moral significance (which seems pretty far).
There are lots more of these justice-type definitions by
diferent kinds of liberals. Although I won't be taking them
up, it is worth noting that they all identify the problem of
the rich as 'absolutely relative' i.e. the rich pose a problem
of justice not because of how wealthy they are in absolute
terms (how much they can buy) but because of the
relation in which they stand to the poor. I will use the same
concept in analysing why the existence of very wealthy
individuals threatens liberalism itself by converting
democracy into plutocracy. However, my approach is quite
diferent than the justice-types because I am not
concerned with the just distribution of wealth, and I won't
try to fix things by making the rich give their money to the
Democracy is fundamentally government by and for the
middle-classes, the bourgeoisie. As the political scientist
Barrington Moore put it succinctly, "No bourgeois, no
democracy." It is no surprise that the flourishing
democratic societies of the world are all politically
dominated by a middle class: middle-class circumstances

are particularly amenable to the spirit of democracy (and

no, India does not count as a flourishing democracy). The
bourgeoisie live in circumstances of moderate abundance:
neither so poor as to be utterly dominated by
circumstances or powerful persons, nor so well-of as to be
free from inter-dependence on the goodwill of other people
for success. This is the sweet spot of sufficient
independence to think for oneself, and sufficient interdependence to be sensitive to the interests and concerns
of other people, that cultivates the civic habits and
dispositions on which a flourishing democratic polity
A democratic society is organic, not a construct of high
theory. Its heart is equality of political status, which sounds
like it's only worth the paper it's written on, but which is
actually all about the freedom of all from domination,
whether by government or other people. A real democracy
must pass what the political philosopher Philip Pettit calls
the 'eye test': Is every person free to look any other in the
eye, without fear and trembling?
The brain of a democracy is its ability to make legitimate
collective choices in a way that everyone accepts even
when they disagree about the conclusions. Again, that
sounds like an abstract adding machine (and social choice
theorists' terminology doesn't help). But actually it's about
community and common sense. The brain works so long as
everyone recognises that we are all in this together, and
that we have a shared interest in and commitment to
making things better for everyone, even though we
disagree about how to do so. The members of a bourgeois
society have an orientation to co-operation, even with
those we disagree with, because we are fixed in relations
of interdependence with each other and have no choice
but to try to make this society work.
So what's the problem with the rich? Their circumstances
of life are distinctly diferent from the bourgeoisie. At the

extreme, the combined assets of Wal-Mart's Walton family

have been calculated to be equal to that of the bottom 150
million Americans. That changes them and their
relationship to the rest of us
The rich are independent of the rest of us. Obviously they
are materially independent so long as their property rights
remain recognised. They can achieve what they want by
themselves, by buying it from others or paying someone to
queue up to buy it for them. But their wealth also
generates a social distance from the rest of us that allows
them to become 'ethically independent'. Since they don't
depend on the goodwill of others to succeed, they can
become less concerned in general about whether they
deserve goodwill. For example, they don't have to keep
bosses and colleagues happy - they don't really have to
work for anyone - but can choose their own projects and
partners (in 2008, only 19% of the income reported by the
13,480 individuals or families making over $10 million
came from wages and salaries, falling to 8% for the top
400 taxpayers).
They are therefore freed from the disciplinary power of
bourgeois social norms and standards (and, it often
appears, even from the laws that apply to little people).
I'm sure that sense of liberty must be quite exhilarating
(romantics and hippies also aspire to it, though they
actually have to make sacrifices to achieve it). But that
freedom also means that they aren't really like the rest of
us. As research has shown, they not only feel entitled to
opt out of ethical standards, to lie and cheat when it suits
them, but they are also less compassionate to others. This
'ethical independence' from the rest of society has political
implications, since, to put it mildly, it does not suggest that
the rule of the rich would be to the benefit of all.
Turning to politics itself, one can see that for the rich the
spirit of cooperation on which democracy depends is only
an option, not a necessity. When the rich engage in politics

they are not under the same constraints as the rest of us

to find a mutually agreeable solution, since their fortunes
are not fixed to the success of this society as ours are.
They can always buy their way around the lack of public
goods, or leave for somewhere nicer.
That means that rich don't have the same political
interests as the rest of us. They aren't worried about crime
(their gated communities come with private security) or
the quality of public education (their kids go to the fanciest
schools money can buy) or afordable health care, job
security, public parks, gas prices, environmental quality, or
most of the other issues that the rest of us have no choice
but to care about, and about care about politically since
they are outside of our individual powers to fix. Rather
than such public goods, their political concerns lie in
furthering their private interests, whether in government
bailouts of their investments or the tax treatment of
'carried interest' .
It is an unfortunately widespread fallacy that democracy is
a means to achieve one's interests, rather than a space in
which the public interest can be deliberated [previously].
Thus some people seem to believe that, in line with the
general working of our modern consumer society, one
orders something one wants on the internet and then 2
weeks later it arrives. Then if it doesn't arrive, they think
democracy must be broken.
However, for the rich, politics actually does work
somewhat like this, because they have the power to
intervene non-democratically in our politics. They can and
do use their wealth to command outsize political influence,
whether by being powerful enough to negotiate directly
with our elected officials about government policies;
by cultivating private relationships with political
candidates who want their financial support; becoming
politicians themselves; or just by buying a louder media
megaphone to transmit their opinions to voters. They act

this way because they believe that their opinion deserves

more voice because it is theirs, and the consequences are
that indeed it receives more attention. This is the logic of
the market, of course. Both in its conception and efects, it
undermines the principle of political equality on which
democracy is founded.
It is sometimes thought that the rich are necessary to the
flourishing of capitalism, that because they have more
wealth than they need for their own consumption it is their
investment of capital that makes the economy spin faster
and creates jobs. (Indeed, in America the richest 10% of
families own 85% of all outstanding stocks, 85% of all
financial securities, and 90% of all business assets.) But in
fact the relationship is rather the other way around. The
more important 'capitalists' are in an economy, the less
efficient it becomes.
Although a free market economy generates inequality, that
is a by-product, not its function. Flourishing capitalism
generates prosperity for a society as a whole by requiring
genuine competition between producers. Just as athletes
who are genuinely competing will give everything they can
to run as fast as possible (for the amusement of the crowd)
and abstain from either collusion with other runners or
sabotage of other athletes' performance, so is genuine
capitalism a demanding task-master with no quarter for
slackers. Capitalism characterised by genuine competition
creates new wealth by incentivising innovation and
imitation, and by allocating resources efficiently to the
parts of the economy where they can be most productively
employed. Competition also leads to the transfer of that
new wealth to consumers, because prices (and hence
profits) are driven down to just above the real costs of
production by the competition for sales.
There are however some problems with this model when it

is is played out dynamically. First, since competitors have

every reason to want an easy life (of of the treadmill) they
will seek out or create niches protected from full
competition where excess profits can be guaranteed. i.e.
they will seek to create and maintain quasi-monopolistic
positions. That means that markets need continuous and
independent policing.
Second, even if the economy is super-competitive and the
average return to producers is very low, the winners of any
particular cycle will probably do very well (like Bill Gates).
This is a necessary incentive to get people playing the
game in the first place. But these winnings create a
problem for the sustainability of the system in the longterm. As Marx noted, the winners of previous rounds of
capitalist competition will not start the next race in the
same position as other competitors. They will be able to
invest in building economies of scale, network efects,
proprietary technologies and so forth which make them
much harder to defeat (a Goliath efect). In fact the more
rounds that are played, the more likely it is that the
system will become a de facto monopoly (or
cosy oligopoly), with all the relatively weaker competitors
eliminated and almost no possibility for new entrants
(Davids) to enter successfully.
When one combines these structural tensions of capitalism
with the outsize political influence enjoyed by the rich, the
result is toxic. Monopolists will then not only have de facto
pricing power. They will also have outsized influence on
determining the rules of the 'competition', to make them
even more favourable and to legitimate and cement their
monopoly privileges. Here we come back to the first
problem: capitalists want a break, not a real race. Given
the opportunity to carve out a domain of guaranteed
excess profits free from competition, they will take it. Like
Carlos Slim's telecoms empire in Mexico, they will rewrite
the laws to secure their position, and Mexicans end up
paying much more for phone calls than people in much

richer countries. Or, on an even grander scale, consider

the re-construction of the financial services industry over
the last 30 years in America. As the number of firms went
down, favourable laws went up, converting the industry
into a rentier system in which the costs of financial
services to the economy as a whole rose, profits rose, and
risks were socialised.
Rentier capitalism doesn't have the same virtues as
genuine capitalism. It undermines the policing required to
maintain real - fair - competition. It misallocates the
country's wealth by funnelling it away from more
productive enterprises into the pockets of those whose
who have managed to assign themselves ownership rights
over bottlenecks in the network of transactions. That
means that although the rich might directly employ lots of
people in their companies - and as gardeners and
housekeepers for their enormous mansions - they aren't
actually net 'job-creators' because their wealth comes from
harvesting the productivity of others in the economy,
rather than making a genuine contribution of their own to
increasing the wealth of the nation. And of course, the
richer these people get, the more power they obtain to
manipulate the economy as a whole for their own personal
benefit. And this is what is known as a plutocracy.
What to do about the rich
I think it is clear that the rich are a burden and a danger to
our democratic society as a whole (if you're still not
convinced, try an economics Nobel prize winner). But that
doesn't tell us what to do about them. Some people would
say that we should tax them into the middle-class, but this
seems punitive and unfair. After all, they got rich by
playing - and winning - the economic game according to
the rules we set. It's not their fault that their wealth is toxic
to democracy. The history of democratic politics also
suggests that genuinely redistributive taxation is not really
feasible because rich people, understandably, fight very

hard politically to prevent it, and that fight is ongoing

because the working of capitalism continually produces
new winners. (The only countries that have achieved it are
monstrous totalitarian regimes, like Stalin's Russia and
Mao's China, primarily motivated to destroy any possible
alternative political power base to themselves. And these
are not good examples to follow.)
To confiscate the fairly earned wealth of the rich and give
it to the middle-class would be unjust, say libertarians. I'm
not going to disagree. But then the problem I'm concerned
with is not social justice - whether relatively poor people in
our society have some sort of moral claim on rich people's
money - but that the very existence of the rich poses a
constitutional problem for a democratic society. I'm against
the rich, but I don't care about their money. And that
allows me to advance a diferent kind of proposal than one
normally sees in this debate: the simple rule that no-one
can be both a member of our democratic society and rich.
A good way of thinking about what a democratic society is
and should be, and how its members relate to it, is in
terms of a social contract. A social contract is an
agreement between all members of a society to form a
kind of private association for the mutual security,
cooperation, and justice of all. One important feature of
this idea is that it allows us to scrutinise whether our
current society would be one that we would have chosen
to create, or whether we would select another
constitutional form that was more just (John Rawls'
project). But one can use it more crudely to draw our
attention to the closed character of our society and its
similarity to a private members club. If we think of our
society as a private association for the mutual benefit of
existing members, as we arguably do when thinking about
immigration [previously], then it seems legitimate to
require that members agree to its constitution and goals.
Whatever the diferences in how its institutions and

principles are specified in detail, any society which

chooses democracy, as we have done, will have an implicit
constitution and a goal. The constitution would specify
that all members are politically equal. The rich, as I have
shown, do not meet this criteria. The goal is a flourishing
and sustainable democratic society that is to the benefit of
all. Yet because their concentrated wealth leads to
concentrated economic power to resist competition the
rich reduce the well-being of the rest of us economically
by reducing the efficiency of the economy. And they
undermine the sustainability of democracy as a whole by
their outsized command over our politics and their selfserving use of it for their independent interests. It seems
to me therefore that the rich simply do not fit the
requirements for or have the requisite interests in being
genuine members of our democratic society. They don't
belong here.
Hence my modest proposal. We should first identify with
some precision the category of what it seems reasonable
to call rich i.e. those people whose capabilities for
independence from and command over the rest of us
crosses the threshold between enviable affluence and
aristocratic privilege. That definition should be 'absolutely
relative' rather than merely relative (e.g. we can't just use
the richest 1%, because there will always be a richest 1%).
A good way to go might be to use some multiple of the
median citizen's wealth as a proxy for the distance from
and power over ordinary citizens that defines problematic
wealth. What that multiple should be is a matter for social
scientists to investigate and democracies to debate, but,
for the purposes of this discussion, let me suggest 30.
Exact numbers are tricky here because measuring wealth
is highly subject to accounting definitions and methods.
Another issue is that wealth defined in terms of net
financial value of one's assets depends on market
conditions. For example, the assets of the middle-class are
primarily their house and pensions, which have both been

hit hard by the economic crisis; while the assets of the rich
are primarily financial products, and thus prone to
continuous fluctuations. In light of this, it might be best to
set bands based on average data, and then revise them
every few years to take account of long term trends. But
for reference, the median American household's wealth is
presently around $120,000 (having declined 35% over the
crisis), suggesting a cut-of of $3.5 million. (For context,
$5.5 million is the present entry point to America's richest
0.1%.) On the other side of the Atlantic, the slightly less
unequal UK apparently has a median wealth of 200,000
(pdf), suggesting a rather more generous wealth allowance
of 6 million.
Then, when anyone in our society lands in the category of
the problematic rich we should say, as at the end of a
cheesy TV gameshow, "Congratulations, you won the
economy game! Well done." And then we should ofer
them a choice: give it up (hold a potlatch, give it to
Oxfam, their favourite art musuem foundation, or
whatever) or cash out their winnings and depart our
society forever, leaving their citizenship at the door on
their way out. Since the rich are, um, rich, they have all
the means they need to make a new life for themselves
elsewhere, and perhaps even inveigle their way into
citizenship in a country that is less picky than we are. So
I'm sure they'll do just fine. Still, we can let them back in to
visit family and friends a few days a year - there's no need
to be vindictive.
There are obviously many difficulties in making my
proposal a reality (and I'm sure readers will point them
out). Leave aside for the moment the technical problems,
like how to properly incorporate income; how to assess the
real value of volatile financial assets; whether individuals
or households are the right units of analysis; or how to
beat the lawyers who have already done so much for the
tax efficiency of the rich. If it could be made to work, what
would happen?
Obviously there would be a mass outpouring of wealth,

especially when it is first instituted. But this need not make

our society poorer. An economy's wealth - as opposed to
an individual's - relates to its efficiency in converting
resources into valuable goods and services. In the long
term our economy's productivity would be higher without
the distorting influence of the rich, and the gains from that
productivity would likely be more equally shared than they
are now.
But I don't think everyone would leave. After all, while tax
avoidance is extremely popular among the rich, true tax
exiles are somewhat rare. Democratic societies really are
great places to live, and plutocracies really aren't. (Even
Russian oligarchs come to live in New York and London,
and send their kids to school there.) I think that many rich
people understand that, and will in fact appreciate that
better if our society forced them to make an explicit choice
between their money and life as an equal member of a
democratic society.
Another possible consequence is a decline in innovation
and entrepreneurship - vital to the future growth of the
economy. If the rewards for winning 'the economic game'
became truncated at a few million dollars, rather than a
few hundred million, will people stop trying so hard? Will
there be no future economic revolutionaries like Bill Gates
and Peter Thiel? This argument seems to rest on two
wobbly assumptions.
First, at the macro-level, that high wealth inequality in a
society drives a higher level of economic innovation. If you
look around the world that obviously isn't true. The most
unequal societies are generally not innovative economies
(look at Russia versus Sweden) but extractive economies
(where privileged elites extract rents).
Second, at the micro-level, that innovators are only
motivated by the possibility of very high rewards. On the
one hand, this seems false because innovation is just what

free people do in the face of interesting or important

problems, whether that be in literature, computer science,
or logistics. On the other hand, it is true that the people,
like Bill Gates, who package up the technological
breakthroughs of others into economically significant
contributions are certainly motivated by the hope of
economic windfalls. And yet, how big does the reward
have to be to motivate entrepreneurial innovation? Does it
really have to be in the billions? Would JK Rowling have
stopped writing books after she reached her 6 million
limit? Perhaps. But against this possibility one has to
consider how purely monetary motivations for innovation
can be distracting and counter-productive. Since the
economy is not perfectly competitive, the financial rewards
for innovation flow to those lucky enough to take
advantage of distortions and privileges, not necessarily to
those who actually make the biggest positive contributions
to social welfare. For example, CEOs can profit from
'innovating' their corporate tax bill down, but this doesn't
benefit the wider economy in the way that a more efficient
supply chain would.
The poor
It may seem curious that I haven't yet mentioned the poor.
If democracy requires a society that is bourgeois through
and through, then the poor may seem as problematic to its
success as the rich. It is not true, however, that the poor
threaten democracy in the same way as the rich. Although
their circumstances are as diferent from the bourgeois as
those of the rich - characterised by the precariousness of
their lives and dependence on others - they do not present
a existential threat to democratic society that should be
excluded, but rather an ethical challenge of including them
fully. A society that wants to flourish as a democracy
should commit to raising its poor into the bourgeoisie. No
doubt about it. Yet it seems to me that the rich are an
obstacle to this justice project and only limited progress
may be made while they remain.

Our political-economy has been designed to suit the rich.

Yes, the system 'redistributes' some money from the
economic winners to the losers (only a small part of taxes
paid). But this is considered a kind of charity that the poor
should be grateful for. The resulting debates about how
much charity they deserve are a distraction from the real
issue of the fairness of the pre-tax distribution. The form
of our social and economic institutions, from capital
markets to labour markets to our system of higher
education, determines who gets what share of the
economy's productivity, and thus who gets to enjoy a life
of aristocratic opulence, middle-class dignity, or precarious
penury. Yet these institutions are not the pure reflection of
perfect competition we have in recent decades been
persuaded to take them for, in which wages exactly equal
economic contribution. If you want to know why CEOs get
so much money and cleaners so little, it's rather ridiculous
to appeal to 'the market' in general (though The Economist
likes to try), especially when pay levels can be seen to
vary so greatly between successful economies. CEOs get
paid so much because CEOs want to get paid so much, and
they have substantial power to make it so.
There is a further sense in which the presence of a rich
elite harms the poor: by skewing our bourgeois sense of
justice from a concern for equal dignity to a concern
for 'meritocracy'. The rights and interests of the poor are
considered, to the extent they are, only in terms of
whether they have a 'fair chance' to pass through the
filtering process that selects who is worthy to be in the tiny
elite (the narrow academic path up through the elite
universities and thence to Goldman Sachs). Not whether
they have a real opportunity to make a decent middleclass life for themselves and their famillies.
To conclude
My proposal will not be enacted anytime soon. But like the
idea of the social contract, it is primarily intended to do its

work hypothetically. The point is to politicise the issue of

excessive wealth not in terms of justice but in terms of
democratic citizenship. In this perspective the advantages
of the rich are turned against them. The rich have been
used to think of themselves as more equal than others in
our society. Yet that power of command over others is
exactly what puts the legitimacy of their place in politics in
question. They have been used to enjoy their
independence from the rest of us, hardly mixing with
ordinary people and hardly noticing the national borders
they cross. Yet this very feature would legitimate and
justify our ostracising them in turn. The rich have made it
perfectly clear that they believe all their accomplishments
came through their own eforts and that they don't need
us for anything except property rights. By their own
reasoning, we wouldn't be doing any harm to the
wealthy by exiling them from our politics, or even literally
exiling them to another country. By achieving such
independence, the rich have brought upon themselves the
burden of justifying why they should be allowed to remain
amongst us. If you don't need us, we can ask, why do we
need you?
What to do about the rich
Why it matters that our politicians are rich
As the presidential primary race has unfolded over the last
few months, curious Americans have angled for a look at
the candidates walletsand observed that they are
bulging. Theres Newt Gingrich, with his $7 million fortune
and an up to $1 million revolving line of credit at Tifany.
The relentlessly anti-elitist Rick Santorum disclosed last
week that he earns roughly $1 million a year. Mitt Romney
built an immense $200 million fortune through his
corporate raider work at Bain Capital; even Ron Paul,
who claimed in one debate that he was embarrassed to

show his tax forms because he made so much less money

than his rivals, is worth as much as $5.2 million.
For three decades we have conducted a massive economic
experiment, testing a theory known as supply-side
economics. The theory goes like this: Lower tax rates will
encourage more investment, which in turn will mean more
jobs and greater prosperityso much so that tax revenues
will go up, despite lower rates. The late Milton Friedman,
the libertarian economist who wanted to shut down public
parks because he considered them socialism, promoted
this strategy. Ronald Reagan embraced Friedmans ideas
and made them into policy when he was elected president
in 1980.
For the past decade, we have doubled down on this theory
of supply-side economics with the tax cuts sponsored by
President George W. Bush in 2001 and 2003, which
President Obama has agreed to continue for two years.
You would think that whether this grand experiment
worked would be settled after three decades. You would
think the practitioners of the dismal science of economics
would look at their demand curves and the data on
incomes and taxes and pronounce a verdict, the way
Galileo and Copernicus did when they showed that
geocentrism was a fantasy because Earth revolves around
the sun (known as heliocentrism). But economics is not like
that. It is not like physics with its laws and arithmetic with
its absolute values.
Tax policy is something the framers left to politics. And in
politics, the facts often matter less than who has the
biggest bullhorn.
The Mad Men who once ran campaigns featuring doctors
extolling the health benefits of smoking are now busy
marketing the dogma that tax cuts mean broad prosperity,
no matter what the facts show.
As millions of Americans prepare to file their annual taxes,
they do so in an environment of media-perpetuated tax
myths. Here are a few points about taxes and the economy

that you may not know, to consider as you prepare to file

your taxes. (All figures are inflation-adjusted.)
1. Poor Americans do pay taxes.
Gretchen Carlson, the Fox News host, said last year 47
percent of Americans dont pay any taxes. John McCain
and Sarah Palin both said similar things during the 2008
campaign about the bottom half of Americans.
Ari Fleischer, the former Bush White House spokesman,
once said 50 percent of the country gets benefits without
paying for them.
Actually, they pay lots of taxesjust not lots of federal
income taxes.
Data from the Tax Foundation show that in 2008, the
average income for the bottom half of taxpayers was
This year the first $9,350 of income is exempt from taxes
for singles and $18,700 for married couples, just slightly
more than in 2008. That means millions of the poor do not
make enough to owe income taxes.
But they still pay plenty of other taxes, including federal
payroll taxes. Between gas taxes, sales taxes, utility taxes
and other taxes, no one lives tax-free in America.
When it comes to state and local taxes, the poor bear a
heavier burden than the rich in every state except
Vermont, the Institute on Taxation and Economic Policy
calculated from official data. In Alabama, for example, the
burden on the poor is more than twice that of the top 1
percent. The one-fifth of Alabama families making less
than $13,000 pay almost 11 percent of their income in
state and local taxes, compared with less than 4 percent
for those who make $229,000 or more.
2. The wealthiest Americans dont carry the burden.
This is one of those oft-used canards. Sen. Rand Paul, the
tea party favorite from Kentucky, told David Letterman
recently that the wealthy do pay most of the taxes in this
The Internet is awash with statements that the top 1

percent pays, depending on the year, 38 percent or more

than 40 percent of taxes.
Its true that the top 1 percent of wage earners paid 38
percent of the federal income taxes in 2008 (the most
recent year for which data is available). But people forget
that the income tax is less than half of federal taxes and
only one-fifth of taxes at all levels of government.
Social Security, Medicare and unemployment insurance
taxes (known as payroll taxes) are paid mostly by the
bottom 90 percent of wage earners. Thats because, once
you reach $106,800 of income, you pay no more for Social
Security, though the much smaller Medicare tax applies to
all wages. Warren Bufett pays the exact same amount of
Social Security taxes as someone who earns $106,800.
3. In fact, the wealthy are paying less taxes.
The Internal Revenue Service issues an annual report on
the 400 highest income-tax payers. In 1961, there were
398 taxpayers who made $1 million or more, so I
compared their income tax burdens from that year to
Despite skyrocketing incomes, the federal tax burden on
the richest 400 has been slashed, thanks to a variety of
loopholes, allowable deductions and other tools. The actual
share of their income paid in taxes, according to the IRS, is
16.6 percent. Adding payroll taxes barely nudges that
Compare that to the vast majority of Americans, whose
share of their income going to federal taxes increased from
13.1 percent in 1961 to 22.5 percent in 2007.
(By the way, during seven of the eight George W. Bush
years, the IRS report on the top 400 taxpayers was labeled
a state secret, a policy that the Obama administration
overturned almost instantly after his inauguration.)
4. Many of the very richest pay no current income taxes at
John Paulson, the most successful hedge-fund manager of
all, bet against the mortgage market one year and then

bet with Glenn Beck in the gold market the next. Paulson
made himself $9 billion in fees in just two years. His
current tax bill on that $9 billion? Zero.
Congress lets hedge-fund managers earn all they can now
and pay their taxes years from now.
In 2007, Congress debated whether hedge-fund managers
should pay the top tax rate that applies to wages, bonuses
and other compensation for their labors, which is 35
percent. That tax rate starts at about $300,000 of taxable
incomenot even pocket change to Paulson, but almost 12
years of gross pay to the median-wage worker.
The Republicans and a key Democrat, Sen. Charles
Schumer of New York, fought to keep the tax rate on
hedge-fund managers at 15 percent, arguing that the
profits from hedge funds should be considered capital
gains, not ordinary income, which got a lot of attention in
the news.
What the news media missed is that hedge-fund managers
dont even pay 15 percent. At least, not currently. So long
as they leave their money, known as carried interest, in
the hedge fund, their taxes are deferred. They only pay
taxes when they cash out, which could be decades from
now for younger managers. How do these hedge-fund
managers get money in the meantime? By borrowing
against the carried interest, often at absurdly low rates
currently about 2 percent.
Lots of other people live tax-free, too. I have Donald
Trumps tax records for four years early in his career. He
paid no taxes for two of those years. Big real-estate
investors enjoy tax-free living under a 1993 law President
Clinton signed. It lets professional real-estate investors
use paper losses like depreciation on their buildings
against any cash income, even if they end up with
negative incomes like Trump.
Frank and Jamie McCourt, who own the Los Angeles
Dodgers, have not paid any income taxes since at least
2004, their divorce case revealed. Yet they spent $45
million one year alone. How? They just borrowed against
Dodger ticket revenue and other assets. To the IRS, they

look like paupers.

In Wisconsin, Terrence Wall, who unsuccessfully sought the
Republican nomination for U.S. Senate in 2010, paid no
income taxes on as much as $14 million of recent income,
his disclosure forms showed. Asked about his living taxfree while working people pay taxes, he had a simple
response: Everyone should pay less.
5. And (surprise!) since Reagan, only the wealthy have
gained significant income.
The Heritage Foundation, the Cato Institute and similar
conservative marketing organizations tell us relentlessly
that lower tax rates will make us all better of.
When tax rates are reduced, the economys growth rate
improves and living standards increase, according to
Daniel J. Mitchell, an economist at Heritage until he joined
Cato. He says that supply-side economics is the simple
notion that lower tax rates will boost work, saving,
investment and entrepreneurship.
When Reagan was elected president, the top marginal tax
rate (the tax rate paid on the last dollar of income earned)
was 70 percent. He cut it to 50 percent and then 28
percent starting in 1987. It was raised by George H.W.
Bush and Clinton, and then cut by George W. Bush. The top
rate is now 35 percent.
Since 1980, when Reagan won the presidency promising
prosperity through tax cuts, the average income of the
vast majoritythe bottom 90 percent of Americanshas
increased a meager $303, or 1 percent. Put another way,
for each dollar people in the vast majority made in 1980,
in 2008 their income was up to $1.01.
Those at the top did better. The top 1 percents average
income more than doubled to $1.1 million, according to an
analysis of tax data by economists Thomas Piketty and
Emmanuel Saez. The really rich, the top one-tenth of 1
percent, each enjoyed almost $4 in 2008 for each dollar in
The top 300,000 Americans now enjoy almost as much
income as the bottom 150 million, the data show.

6. When it comes to corporations, the story is much the

sameless taxes.
Corporate profits in 2008, the latest year for which data
are available, were $1,830 billion, up almost 12 percent
from $1,638.7 billion in 2000. Yet, even though corporate
tax rates have not been cut, corporate income-tax
revenues fell to $230 billion from $249 billionan 8
percent decline, thanks to a number of loopholes. The
official 2010 profit numbers are not added up and released
by the government, but the amount paid in corporate
taxes is: In 2010 they fell further, to $191 billiona decline
of more than 23 percent compared with 2000.
7. Some corporate tax breaks destroy jobs.
Despite all the noise that America has the worlds secondhighest corporate tax rate, the actual taxes paid by
corporations are falling because of the growing number of
loopholes and companies shifting profits to tax havens like
the Cayman Islands.
And right now Americas corporations are sitting on close
to $2 trillion in cash that is not being used to build
factories, create jobs or anything else, but acts as an
insurance policy for managers unwilling to take the risk of
actually building the businesses they are paid so well to
run. That cash hoard, by the way, works out to nearly
$13,000 per taxpaying household.
A corporate tax rate that is too low actually destroys jobs.
Thats because a higher tax rate encourages businesses
(who dont want to pay taxes) to keep the profits in the
business and reinvest, rather than pull them out as profits
and have to pay high taxes.
The 2004 American Jobs Creation Act, which passed with
bipartisan support, allowed more than 800 companies to
bring profits that were untaxed but overseas back to the
United States. Instead of paying the usual 35 percent tax,
the companies paid just 5.25 percent.
The companies said bringing the money home
repatriating it, they called itwould mean lots of jobs.

Sen. John Ensign, the Nevada Republican, put the figure at

660,000 new jobs.
Pfizer, the drug company, was the biggest beneficiary. It
brought home $37 billion, saving $11 billion in taxes.
Almost immediately it started firing people. Since the law
took efect, Pfizer has let 40,000 workers go. In all, it
appears that at least 100,000 jobs were destroyed.
Now Congressional Republicans and some Democrats are
gearing up again to pass another tax holiday, promoting a
new Jobs Creation Act. It would afect 10 times as much
money as the 2004 law.
8. Republicans like taxes too.
President Reagan signed into law 11 tax increases,
targeted at people down the income ladder. His
administration and the Washington press corps called the
increases revenue enhancers. Reagan raised Social
Security taxes so high that by the end of 2008, the
government had collected more than $2 trillion in surplus
George W. Bush signed a tax increase, too, in 2006,
despite his written ironclad pledge never to raise taxes on
anyone. It raised taxes on teenagers by requiring kids up
to age 17, who earned money, to pay taxes at their
parents tax rate, which would almost always be higher
than the rate they would otherwise pay. It was a story that
ran buried inside The New York Times one Sunday, but
nowhere else.
In fact, thanks to Republicans, one in three Americans will
pay higher taxes this year than they did last year.
First, some history. In 2009, President Obama pushed his
own tax cutfor the working class. He persuaded
Congress to enact the Making Work Pay Tax Credit. Over
the two years 2009 and 2010, it saved single workers up to
$800 and married heterosexual couples up to $1,600, even
if only one spouse worked. The top 5 percent or so of
taxpayers were denied this tax break.
The Obama administration called it the biggest middleclass tax cut ever. Yet last December the Republicans,

poised to regain control of the House of Representatives,

killed Obamas Making Work Pay Credit while extending
the Bush tax cuts for two more yearsa policy Obama
agreed to.
By doing so, Congressional Republican leaders increased
taxes on a third of Americans, virtually all of them the
working poor, this year.
As a result, of the 155 million households in the tax
system, 51 million will pay an average of $129 more this
year. That is $6.6 billion in higher taxes for the working
poor, the nonpartisan Tax Policy Center estimated.
In addition, the Republicans changed the rate of workers
FICA contributions, which finances half of Social Security.
The result:
If you are single and make less than $20,000, or married
and less than $40,000, you lose under this plan. But the
top 5 percent, people who make more than $106,800, will
save $2,136 ($4,272 for two-career couples).
9. Other countries do it better.
We measure our economic progress, and our elected
leaders debate tax policy, in terms of a crude measure
known as gross domestic product. The way the official
statistics are put together, each dollar spent buying solar
energy equipment counts the same as each dollar spent
investigating murders.
We do not give any measure of value to time spent rearing
children or growing our own vegetables or to time of for
leisure and community service.
And we do not measure the economic damage done by
shocks, such as losing a job, which means not only loss of
income and depletion of savings, but loss of health
insurance, which a Harvard Medical School study found
results in 45,000 unnecessary deaths each year.
Compare this to Germany, one of many countries with a
smarter tax system and smarter spending policies.
Germans work less, make more per hour and get much
better parental leave than Americans, many of whom get
no fringe benefits such as health care, pensions or even a

retirement savings plan. By many measures the vast

majority live better in Germany than in America.
To achieve this, unmarried Germans on average pay 52
percent of their income in taxes. Americans average 30
percent, according to the Organization for Economic
Cooperation and Development.
At first blush the German tax burden seems horrendous.
But in Germany (as well as in Britain, France, Scandinavia,
Canada, Australia and Japan), tax-supported institutions
provide many of the things Americans pay for with aftertax dollars. Buying wholesale rather than retail saves
A proper comparison would take the 30 percent average
tax on American workers and add their out-of-pocket
spending on health care, college tuition and fees for
services, and compare that with taxes that the average
German pays. Add it all up and the combination of tax and
personal spending is roughly equal in both countries, but
with a large risk of catastrophic loss in America, and a tiny
risk in Germany.
Americans take on $85 billion of debt each year for higher
education, while college is financed by taxes in Germany
and tuition is cheap to free in other modern countries.
While soaring medical costs are a key reason that since
1980 bankruptcy in America has increased 15 times faster
than population growth, no one in Germany or the rest of
the modern world goes broke because of accident or
illness. And child poverty in America is the highest among
modern countriesalmost twice the rate in Germany,
which is close to the average of modern countries.
On the corporate tax side, the Germans encourage
reinvestment at home and the outsourcing of low-value
work, like auto assembly, and German rules tightly control
accounting so that profits earned at home cannot be made
to appear as profits earned in tax havens.
Adopting the German system is not the answer for
America. But crafting a tax system that benefits the vast
majority, reduces risks, provides universal health care and
focuses on diplomacy rather than militarism abroad (and

at home) would be a lot smarter than what we have now.

Here is a question to ask yourself: We started down this
road with Reagans election in 1980 and upped the ante in
this century with George W. Bush.
How long does it take to conclude that a policy has failed
to fulfill its promises? And as you think of that, keep in
mind George Washington. When he fell ill his doctors
followed the common wisdom of the era. They cut him and
bled him to remove bad blood. As Washingtons condition
grew worse, they bled him more. And like the mantra of
tax cuts for the rich, they kept applying the same
treatment until they killed him.
Luckily we dont bleed the sick anymore, but we are
bleeding our government to death.

For three decades we have conducted a massive economic

Over The Last Five Years, Boeing's Total Tax Rate Was 4.5
Washington D.C. is observing Emancipation Day today,
commemorating the historic bill President Lincoln signed
into law in 1862 ending slavery in the nation's capital. The
Internal Revenue Service is observing the holiday,
meaning taxpayers will have until April 18 this year to file
their returns. Businesses too. And significant chunks of
corporate America will get a pretty sweet deal when it
comes time to turn in their returns, if recent history
continues. Take Chicago-based Boeing as an example.
Shortly after the president's State of the Union speech,
New York Times economics columnist David Leonhardt
published an illuminating piece about corporate tax rates,
reporting that over the past five years, Boeing paid a total
tax rate of just 4.5 percent (the company said it
contributed more money to its pension fund and received
research credits, lowering its rate). In all, Leonhardt

reported that 115 out of the 500 large firms listed on the
Standard & Poor's index owed a total tax rate of less than
20 percent -- substantially lower than the 35 percent
federal rate for corporations. And 39 of those firms paid
less than 10 percent.
Some firms -- like General Electric -- owed nothing in
federal corporate taxes in 2010, despite racking up over
$14.2 billion in profits, more than a third of which were
generated in the U.S. Obama said in his State of the Union
speech that the loophole-riddled system must change, but
Leonhardt concluded in Feburary that that wouldn't be
easy. "[A]ny system that creates as many winners as this
one wont be changed easily," he wrote. Progressives and
labor activists will seek to push the issue forward on April
18 at "Make Them Pay" events targeting millionaires and
large corporations across the country.
Boeing, by the way, has been the recipient of substantial
public largesse, from a City of Chicago tax increment
financing grant to the billions it receives in federal
boeing pays 4 one half percent tax
The Corporation (film)
Jump to: navigation, search
The Corporation is a 2003 Canadian documentary film
critical of the modern-day corporation, considering it as a
class of person (as in US law it is understood to be) and
evaluating its behaviour towards society and the world at
large as a psychologist might evaluate an ordinary person.
Directed by Mark Achbar and Jennifer Abbott. Written by
Joel Bakan.
Contents [hide]
1 Narrator
("Mikela Mikael")
2 Noam

3 Others
4 See Also
Narrator ("Mikela Mikael")
51. 150 years ago, the business corporation was a
relatively insignificant institution. Today, it is allpervasive. Like the Church, the Monarchy and the
Communist Party in other times and places, the
corporation is today's dominant institution. This
documentary examines the nature, evolution, impacts,
and possible futures of the modern business
corporation. Initially given a narrow legal mandate,
what has allowed today's corporation to achieve such
extraordinary power and influence over our lives? We
begin our inquiry as scandals threaten to trigger a
wide debate about the lack of public control over big
51. Through the voices of CEOs, whistle blowers, brokers,
gurus and spies, insiders and outsiders, we present the
corporation as a paradox, an institution that creates
great wealth, but causes enormous, and often hidden
% To determine the kind of personality that drives the
corporation to behave like an externalising machine,
we can analyse it like a psychiatrist would a patient.
We can even formulate a diagnosis, on the basis of
typical case histories of harm it has inflicted on others
selected from a universe of corporate activity.
% Having acquired the legal rights and protections of a
person, the question arises - what kind of person is the
Noam Chomsky
% The dominant role of corporations in our lives is
essentially a product of roughly the past century.
Corporations were originally associations of people
who were chartered by a state to perform some
particular function. Like a group of people want to

build a bridge over the Charles River, or something like

% Corporations were given the rights of immortal
persons. But then special kinds of persons, persons
who had no moral conscience. These are a special kind
of persons, which are designed by law, to be
concerned only for their stockholders. And not, say,
what are sometimes called their stakeholders, like the
community or the work force or whatever.
% Robert Keyes: The word corporate gets attached in
almost, you know, in a pejorative sense to and gets
married with the word "a-gen-da." And one hears a lot
about the corporate a-gen-da as though it is evil, as
though it is an agenda, which is trying to take over the
world. Personally, I don't use the word "corporation." I
use the word "business." I will use the word... use the
word "company." I will use the words "business
community" because I think that is a much fairer
representation than zeroing in on just this word
% Ray Anderson: The modern corporation has grown out
of the industrial age. The industrial age began in 1712
when an Englishman named Thomas Newcomen
invented a steam driven pump to pump water out of
the English coal mine, so the English coal miners could
get more coal to mine, rather than hauling buckets of
water out of the mine. It was all about productivity,
more coal per man-hour. That was the dawn of the
industrial age. And then it became more steel per
man-hour, more textiles per man-hour, more
automobiles per man-hour, and today, it's more chips
per man-hour, more gizmos per man-hour. The system
is basically the same, producing more sophisticated
products today.
% Mary Zepernick: There were very few chartered
corporations in early United States history. And the
ones that existed had clear stipulations in their state


issued charters, how long they could operate, the

amount of capitalisation, what they made or did or
maintained, a turnpike or whatever was in their
charter and they didn't do anything else. They didn't
own or couldn't own another corporation. Their
shareholders were liable. And so on.
Richard Grossman: In both law and the culture, the
corporation was considered a subordinate entity that
was a gift from the people in order to serve the public
good. So you have that history, and we shouldn't be
misled by it, it's not as if these were the halcyon days,
when all corporations served the public trust, but
there's a lot to learn from that.
Robert Monks: The great problem of having corporate
citizens is that they aren't like the rest of us. As Baron
Thurlow in England is supposed to have said, "They
have no soul to save, and they have no body to
incarcerate." (and) The corporation is an externalizing*
machine, in the same way that a shark is a killing
machine. *(moving its costs to external organizations
and people)
Michael Moore: I believe the mistake that a lot of
people make when they think about corporations, is
they think you know, corporations are like us. They
think they have feelings, they have politics, they have
belief systems, they really only have one thing, the
bottom line - how to make as much money as they can
in any given quarter. That's it.
Ira Jackson: The eagle, soaring, clear-eyed,
competitive, prepared to strike, but not a vulture.
Noble, visionary, majestic, that people can believe in
and be inspired by, that creates such a lift that it
soars. I can see that being a good logo for the
principled company. Okay, guys, enough bullshit.
Oscar Olivera: At the climax of the struggle, the army
stayed in their barracks; the police also remained in
their stations; the members of Congress became
invisible; the Governor went into hiding, and
afterwards, he resigned. There wasn't any authority

left. The only legitimate authority was the people

gathered at the city square making decisions in large
Wikipedia has an article about:
The Corporation (film)
See Also
% Michael Moore
% Noam Chomsky

The Corporation
Proving yet again the rich arent like the rest of us, the
Harper government has moved quickly to clear the way for
disgraced former newspaper owner Conrad Black to return
to Canada as early as Friday.
If all goes well for Black, he will be released Friday morning
from a U.S. prison in Miami, grab a ride to the airport to
board a plane and arrive in Toronto in time for dinner.
Not bad, eh, for a foreigner who renounced his Canadian
citizenship more than a decade ago, who has repeatedly
dissed our country, who has been convicted in an
American court of serious criminal ofences, who has
served more than three years behind bars and who has
shown no sign either of remorse or of having been
Doesnt seem right, does it?
Indeed, theres a strong stench wafting up from this
surprise decision by the federal government to give
speedy approval to Blacks application for a one-year
temporary-resident permit, which was okayed in midMarch.
Thats because Black, a still-wealthy man with strong ties
to powerful conservative politicians and business leaders,
clearly had his permit fast-tracked in Ottawa, while

thousands of deserving applicants wait months, if not

years, before their requests are granted.
Also, its unusual for Ottawa to grant a convicted criminal a
one-year permit. Usually, the permits are for only six
Now, I see no problem with Black being granted a
temporary permit to visit Canada. Hes lived here most of
his life, has a house in a posh Toronto neighbourhood and
isnt thought to be physically violent. Indeed, Ottawa
issues some 10,000 such permits annually.
But the haste in which Ottawa acted and the length of his
permit raises yet again the question of whether Black is
receiving special treatment from the Harper government.
It wouldnt be the first time for Black.
Under Harpers watch, hes already being treated as a
special case, being allowed to keep both his Order of
Canada award and his membership in the Privy Council.
The advisory council in charge of the Order of Canada has
repeatedly refused to strip the order from Black, despite
his meeting all the requirements for such action.
Also, Harper has kept Black as a member of the Queens
Privy Council for Canada, which is mainly comprised of
current and former cabinet ministers and chief justices.
Because Black is a privy councillor, Canada will be forced
to honour him upon his death by lowering the flag on the
Peace Tower on Parliament Hill.
The issue of special treatment is important because
obtaining a temporary permit is a first step for a foreigner
seeking full Canadian citizenship.
Black talked last summer with Matt Galloway, the host of
CBC Torontos Metro Morning radio program, about
eventually trying to regain his Canadian citizenship. I can
see quite clearly, looming larger every day, the end of this
horrible sequence of events, he said.
But most Canadians rightly dont want him back. One
online survey indicated about 78 per cent of the 7,000
respondents said No, when asked if Black should be
granted citizenship.
Until Black apologizes to Canadians for his tempestuous

decision to revoke his citizenship in 2001, Ottawa should

deny any eforts by Black to get his Canadian passport
In a slap in the face to all Canadians, Black renounced his
citizenship in order to become a member of the British
House of Lords, taking the title of Lord Black of
At the time, he couldnt wait to flee Canada, delighting his
rich conservative buddies by trashing our country,
suggesting we were all losers, saying his decision was an
act of patriotism directed against Canadian complacency
at being a one-party federal state with no deliverance in
He described Canada as a plain vanilla place and said
most Canadians remain resolutely oblivious to their
countrys objective decline, adding that interest in
Canada is like Canadian art it has no market outside the
Oh, how Lord Black harboured so much disgust for our
On Friday, he will stride into Canada, full of himself and
taking us for fools.
He should be ashamed of himself and all of us should be
ashamed for believing political leaders when they insist
the rich are treated just like everyone else.
Canada has granted Conrad Black a temporary, one-year
resident permit, giving him access to this country after his
release from a U.S. prison on Friday. Black is seen here
with his wife Barbara Amiel leaving court in Chicago on July
23, 2010.

Proving yet again the rich arent like the rest of us

The 400 wealthiest families in the U.S. aren't just filthy

rich, they are downright dirty. Collectively, these

households own $1.37 trillion dollars; a number so high
that it's nearly impossible to comprehend. Here are 11
shocking things $1.37 trillion can buy that you can't.
In the U.S., accumulating this kind of wealth is the
"American Dream." Getting rich is the result of hard work;
padding your bank account is applauded and encouraged.
But at what cost? Have we created economic policies that
cater to the wealthy, in hopes that we will someday be
among them?
Perhaps in today's economy, we have allowed the wealthy
to get too far ahead financially.
Case in point: today, the wealthiest families in the U.S. are
sickeningly, obscenely rich, to the tune of $1.37 trillion
dollars. And unlike the rest of us, they dont have
outstanding medical bills or student loans, trouble paying
credit card debt, or live paycheck to paycheck. So how
much is $1.37 trillion dollars? To demonstrate just how
much money this is, here are 11 things that the richest
400 households in the U.S. can buy with their "hardearned" cash:
The richest 400 households can pay of every student loan
for every single student in the entire United States. No
more paying for an education, so that you can get a good
job so that you can... well, pay of your education.
52. The richest 400 could pay your rent, and the rent of
every single renter in the entire United States for three
52. The richest 400 could pay the mortgages of every
house in the whole country for 14 full months.
% The richest 400 households can buy every single
house that was foreclosed on in 2007 and 2008.
% The richest 400 households could pay the annual
salaries of 19 million families for one year. So go
ahead, take that year-long, family vacation around the
world youve always dreamed of.
% The richest 400 can pay of all credit card debt for
every single person in the entire United States.
Imagine that! No more credit card debt looming over

your shoulders!
% The richest 400 households can aford to give a
$10,000 bonus to every single worker in the entire
country. What would a hardworking person like you do
with that extra money?
% The richest 400 can aford to buy a new car for every
family in the United States. Meanwhile, many of us
must ignore the flashing check engine light.
% The richest 400 can pay for 3 years worth of gas for
every driver in the country.
% The richest 400 households can aford to triple the
number of teachers in the United States, then give
every single one a $30,000 raise. Teachers are being
laid of everywhere, their salaries are being cut, and
they are sufering. Teacher-to-student ratios in schools
are abysmal. But what can we do about it when so
much wealth is in the pockets of so few families?
% The richest 400 families alone could replace 70% of all
money lost in the Great Recession, for everyone! How
much money did you, your parents, or grandparents
lose in the Great Recession of 2008? 30%, 50% of your
portfolio? Not only do the rich still have enough money
to fund their wildest dreams, but they can also fund
your retirements.
As you can see, the wealthiest families in the U.S. are
doing just fine. And with this money has come a great deal
of political influence, often in the form of tax breaks and
tax loopholes. Their influence on policy has made it easy
for the rich to stay rich [and get richer].
And until this winner-take-all economy changes, it will
remain nearly impossible for us regular folks to get ahead,
no matter how hard we work.
The 400 wealthiest families in the U
corporation, and the rich-negative personality traits
"...this time it's like the Gilded Age on steroids"

And that's an understatement. What we have been seeing

is an all-out assault on our economy, Constitution and
I really question this approach by Feingold.
Why just progressives when ALL groups would get on
board with this? A huge majority of Americans want the
money out of elections.
Feingold must know by now that NO movement is likely to
be efective if it singles out one group.
Feingold's idea is likely to divide and conquer the people
further and preemptively make it absolutely certain that
we don't even succeed on an issue we can all agree upon
that happens to be the key issue for any real change in
this country.
What the citizens of this country must do for real change is
to come together in numbers too large and powerful for
Congress to ignore on issues like this that we already
agree upon.
Divided groups of citizens have no power to tackle really
large issues like this.
gilded age
Welcome to the (New) Gilded Age: Supreme Court Delivers
the Goods to Corporations

This 1876 cartoon by Thomas Nast which ran in

Harper's Weekly originally referred to the disputed
presidential election a month earlier. Sadly, it may also
depict one potential outcome of last week's Supreme
Court decision.


Peter LaarmanPeter Laarman is executive director of

Progressive Christians Uniting, a network of activist
individuals and congregations headquartered in Los
Angeles. He served as the senior minister of New
Yorks Judson Memorial Church from 1994 to 2004.
Ordained in the United Church of Christ, Peter spent
15 years as a labor movement strategist and
communications specialist prior to training for the
I hope we shall... crush in [its] birth the aristocracy of our
monied corporations which dare already to challenge our
government to a trial of strength and bid defiance to the
laws of our country. Thomas Jeferson, letter to George
Logan, 1816Of last weeks two domestic temblorsthe
Massachusetts vote on Tuesday and the Supreme Courts
ruling on Thursdaythe second is the one that should
really be giving us night sweats. The Courts Unfab Five
(Roberts, Alito, Scalia, Thomas, and Kennedy) landed a
devastating blow to the body politic and to the entire
concept of popular sovereignty. I told a friend that as a
practical matter, we might just dispense with our costly
House and Senate and simply treat the Business
Roundtable and the Conference Board as our two federal
legislative chambers. And the same is true at the state
level: Citizens United v. Federal Election Commission also
invalidates most current state restrictions on corporate
spending to advance or defeat particular candidates. It will
trigger a torrent of ugly litigation until those state
restrictions give way.Many of us once deplored Bush v.
Gore as giving efective judicial sanction to a Republican
coup detat; however, Citizens United is not merely courtsanctioned, but court-engineered, amounting to a judicial
coup detat executed in behalf of the already-ascendant
money power in our society. Noting that this ruling will
likely benefit Republicans much more than Democrats is
really beside the point; the pointthe well-sharpened and
deadly pointis that Citizens United will vastly strengthen
the hand of the predatory class to call the tune for

politicians across the political spectrum. Much more

illuminating than the lead coverage in Fridays New York
Times was the sidebar by David Kirkpatrick: Lobbies New
Power: Cross Us, And Our Cash Will Bury You.Justice John
Paul Stevens dissent (joined by Justices Breyer, Ginsburg,
and Sotomayor) was both pungent and melancholy: an
elegy, really, for the old idea that money and the
manipulation it buys are strongly antithetical to a healthy
democratic public life. Particularly ofensive in the
majoritys ruling, written by Justice Kennedy, were the
repeated references to congressional restrictions on
corporate behavior vis--vis elections, as representing
unconscionable and unconstitutional censorshipthe
majority clearly believing that private corporate money
has an unrestricted First Amendment right not merely to
speak but to shout down anyone who dares to challenge
its primacy. Although corporations resemble the
golem much more than they do living, breathing human
beings, this court just invited the golem to take over
democracys temple and to dance the night away at the
publics expense.In mainstream media reporting, three
alleged silver linings kept popping up: (1) the Court left in
place restrictions on direct corporate contributions to
candidatesi.e., they can only fund independent
campaigning in behalf of particular candidates; (2) unions
will likewise get to do direct campaigning without limits;
and (3) corporations might hesitate to buy elections
outright for fear of alienating shareholders. I say that the
proper names for these so-called bright sides are rot,
piffle, and balderdash: the independence of so-called
independent campaign expenditures is known to be a
complete fiction; American unions, battered down by a 40year campaign to destroy their influence, have just a
fraction of the money and juice that corporations enjoy;
and please try to convince me that a company like ExxonMobil is going to worry a lot about alienating shareholders
whose holdings stand to benefit handsomely from the work
of a key Senatorial friend over here, or a compliant
governor over there.Remembering Babylon: That Gilded

Age and This OneWe should mark 1886 for its singular gift
to the robber barons. This was the year in which the
Supreme Court declared, in Santa Clara County, that
corporations are persons under the meaning of the 14th
Amendment. As David Korten writes of this very peculiar
decision:In the case of Santa Clara County v. Southern
Pacific Railroad Company, the US Supreme Court decided
that a private corporation is a person and entitled to the
legal rights and protections the Constitutions afords to
any person. Because the Constitution makes no mention of
corporations, it is a fairly clear case of the Courts taking it
upon itself to rewrite the Constitution. Far more
remarkable, however, is that the doctrine of corporate
personhood, which subsequently became a cornerstone of
corporate law, was introduced into this 1886 decision
without argument. According to the official case record,
Supreme Court Justice Morrison Waite simply pronounced
at the outset that The court does not wish to hear
argument on the question whether the provision in the
Fourteenth Amendment to the Constitution, which forbids
a State to deny to any person within its jurisdiction the
equal protection of the laws, applies to these corporations.
We are all of opinion that it does.The irony of the Courts
fully enfranchising private corporations at the very same
time that it was systematically disenfranchising the actual
persons the 14th Amendment was designed to help
African Americanshas not been lost on historians. Three
years earlier, in 1883, the Court had invalidated the Civil
Rights Act of 1875; ten years later in Plessy v. Ferguson, it
would formally validate the infamous separate but equal
doctrine.What makes that Gilded Age dramatically
diferent from our own, however, is that in 1886 there were
powerful social movements pushing back against the
plutocrats. The American Federation of Labor was founded
in 1886, joining the Industrial Workers of the World (IWW),
the Knights of Labor, the Socialist Labor Party and an array
of other worker-based movements demanding industrial
and political democracy. The brutal police massacre that
took place in Chicagos Haymarket Square that same year

merely galvanized the nascent labor movement even

more. Democrat Grover Cleveland had defeated
Republican James G. Blaine for the White House two years
earlier, in part because of Blaines well-documented fealty
to corporate interests while serving as Speaker of the
House. It didnt help Blaines cause when one of his
supporters, a New York clergyman, declared that the
Republican Party represented the countrys last defense
against rum, Romanism, and rebellion.Both prairie
populism and urban populism surged on into the 1890s,
although the two never managed to combine efectively
and both were marred and hobbled by the deep-seated
racism of white populists. Significantly, it was South
Carolina populist senator Ben Pitchfork Tillman who
authored the law that was invalidated last week by the
Roberts Court: the 1907 Tillman Act. During the 20th
centurys first years, Democrat Tillman and Republican
Theodore Roosevelt engaged in a kind of contest to see
who could stick it to the railroads most efectively.
Inheriting the presidency from Mark Hannas sock puppet
(William McKinley) following the sock puppets
assassination in 1901, Roosevelt was desperately trying to
steer his party in a progressive direction. He sensed an
urgent need to ride a rising anti-corporate tide, promising
working people what he called a Square Deal against the
power of the predatory class. Whether Roosevelt, like his
cousin Franklin in a subsequent era, was totally sincere in
battling the capitalists is beside the point: both of the
aristocratic Roosevelts were driven to take anti-corporate
positions under the influence of powerful grassroots social
movements.And we should not forget the role religion
played in legitimating anti-corporate sentiment. For every
preacher castigating rum, Romanism, and rebellion there
were many more who stood with the working poor against
the gross exploitation symbolized by child labor, 12-hour
working days, unscrupulous tenant farming practices, and
open bribery and corruption in politics. It was during this
same era (from 1880 to 1910) that the Social Gospel took
root under the leadership of figures like Gladden and

Rauschenbusch. More influential by far than these

Protestant prophets, however, was the doctrinal and
practical support given to workers and worker movements
by Roman Catholic prelates and priests in the major urban
centers.Do we have anything like a solidly-rooted and
theologically-sanctioned movement that is prepared to do
battle with todays equivalent of the railroad barons? If you
cant answer the question in less than two seconds you
already have your answer. Yes, we have noble communitylabor-religion coalitions scattered across the country that
are winning mostly limited victories over abusive
employers. And at the national level we have some feisty
networks like Interfaith Worker Justice, PICO, and the
Center for Community Change attempting to mobilize
people from below to resist unjust power. But these
movements remain hugely under-resourced andmost
criticallythey are cut of from the heart of Democratic
Party politics, which is today a cold and thoroughly
corporatized heart.At least once a week, it seems, New
York Times op-ed columnist Bob Herbert is asking, as he
did this past Saturday, whether there is anything that will
wake [Democrats] up to their obligation to extend a
powerful hand to ordinary Americans and help them take
the government, including the Supreme Court, back from
the big banks, the giant corporations, and the myriad
other predatory interests that put the value of a dollar high
above the value of human beings.Herbert must know that
there is very little that will wake them upexcept perhaps
a few more bad bruisings at the hands of the right-wing
Tea Party populists now being organized and trained by
Dick Armeys FreedomWorks. Obama himself may have to
show Geithner and Summers and even Ben Bernanke the
door in order to stake any claim to having actual populist
credentials.But even if the president and his party could
manage to mouth the words and manipulate the symbols,
they will remain all too conscious of the fact that top-down
populism isnt really populism at all. For the Democrats to
function as the peoples party, the people themselves
need to be educated, inspired, encouraged, and mobilized

to exercise popular sovereignty in a progressive direction.

And in a fragmented, atomized culture, what are the odds
that anyone is going to take on this gargantuan and
complex mission? The dirty little secret of progressive
elites is that they dont even want this kind of popular
mobilization: theyre still afraid of the Great Unwashed.
That leaves the field to the proto-fascists. Lets see how
they run, shall we?
In one of the better segments I've seen Rachel do in a long
time, she explains the Republican Party's all-out war on
government and public-sector union members, and why
they're just fine with federal job losses. Rachel Maddow
and Ed Schultz really have both done a great job of
covering the protest in Wisconsin. And unlike their cohorts
over at Fox News, they're covering it from the workers' and
labor's perspective instead of attacking the unions.
Rachel also talked to former Wisconsin Senator Russ
Feingold about his new organization, Progressives United.
Amanda Terkel at the HufPo has more on that.
Russ Feingold Launches 'Progressives United' To Combat
Corporate Influences In Politics:
When some senators retire, they decide to take lucrative
lobbying jobs. Others go straight to Wall Street. But
Wisconsin Democrat Russ Feingold, who lost his re-election
bid in November, is continuing on his principled -- and
often lonely -- path by starting an organization to combat
corporate influence in politics, an efort he hopes will spark
"a new progressive movement" that will truly hold elected
officials accountable.
Launching on Wednesday, Progressives United is an
attempt to to build a grassroots efort aimed at mitigating
the efects of, and eventually overturning, the Supreme
Court's infamous Citizens United decision that opened the
floodgates to corporate spending in the U.S. electoral
system. In addition to online mobilization, the political
action committee (PAC) will support progressive
candidates at the local, state and national levels, as well

as holding the media and elected officials accountable on

the group's key priorities.
"In my view -- and the view of many people -- it's one of
the most lawless decisions in the history of our country,"
said Feingold of Citizens United in an interview with The
Huffington Post. "The idea of allowing corporations to have
unlimited influence on our democracy is very dangerous,
obviously. That's exactly what it does ... Things were like
this 100 years ago in the United States, with the huge
corporate and business power of the oil companies and
others. But this time it's like the Gilded Age on steroids."
Go read the rest and here's Feingold talking to Rachel
Maddow about empowering U.S. workers and his new
progressive united
The old, reliable villains free capitalism gone bad -Rockefeller's octopus business m0noply, and. below,
ubiquitous Mr. Money Bags.
The author David Kaiser is a published historian, writer on
his blog History Unfolding (where this article was
published) and instructor at the U.S. Naval War College in
Providence, Rhode Island. He argues that the long-term
effects of the recent Supreme Court ruling, Citizens United
v. Federal Election Commission, Decided January 21, 2010
may result in a new political "Gilded Age" -- for the
wealthy of course.
I had intended, of course, to say something about the
outcome [of the recent Senate election] in Massachusetts,
which, though in the end rather close, has already turned
out to be a decisive event in our current political struggles
by unquestionably putting the momentum onto the
Republican side. Twelve months too late, the President is
now trying to pull populist anger to his side, but since he

will now be unable to get any meaningful corporate reform

through Congress, he is very unlikely to be successful.
(Yesterday Paul Krugman, whom as you know I regard as
one of my few allies, called upon the House of
Representatives to pass the Senate health bill. Good luck,
Paul--I don't think it's going to happen.)I had already
predicted that younger voters would determine the
outcome in Massachusetts (as they had in the last
presidential election) and I was right: they gave the
Republicans the election by staying home. Only about 20%
of them voted (and those went heavily for Coakley), as
opposed to more than half of older voters. Yet the point of
this particular blog is above all to go beyond the day's
events by putting them in historical perspective, and in
that sense, the Supreme Court's decision on campaign
financing dwarfs the significance of that particular special
election.Other decisions on subjects like abortion and gay
rights have also swept away long-standing precedents
(mostly in state laws), but in one sense, as others have
noted, Citizens United vs. Federal Election Commmission
can only be compared to Dred Scott. That earlier decision
overruled various laws--the Compromise of 1850, the
Missouri Compromise of 1820, and even the preConstitutional Northwest Ordinance, going back over
seventy years. This one goes back even further, undoing a
critical principle of the Progressive Era--and therein lies the
heart of the matter.The Progressive era, which lasted in
efect roughly from 1901 until 1917 or so, was a nonpartisan experiment in reform designed to mitigate the
efects of the industrial and commercial revolutions and
broaden liberties. Leading Progressives included both
Republicans and Democrats, including Presidents Theodore
Roosevelt and Woodrow Wilson. Their achievements
included the implementation of the Sherman Antitrust Act
under TR, the Federal Reserve Board under Wilson, and
constitutional amendments establishing the vote for
women and the income tax. (In one of the great untold
stories of American history--one very deserving of a long
book--they also included an amendment to ban child labor

that passed the Congress but was never ratified by the

states.)They also included numerous reforms to improve
(as Progressives saw it) the democratic process, including
direct primaries (for both state offices and, in some states,
for the nomination of Presidential candidates), recall
elections, and referendums. Last, but hardly least, under
Theodore Roosevelt the Congress passed a law forbidding
corporations from contributing directly to political
campaigns. All of this came to a crashing halt in the wake
of the First World War, but various ideas developed during
that era became, after the economic collapse of 1929-32,
a big part of the basis for the New Deal--as I learned in my
youth from various GI historians like the great Richard
Hofstadter and Arthur Schlesinger, Jr.Large elements of the
Republican Party were never reconciled to the New Deal.
Those elements, interestingly enough, did not manage
even to nominate a Presidential candidate from 1933
through 1963--neither Landon nor Willkie nor Dewey nor
Eisenhower or Nixon were diehard free-marketeers. When
Goldwater was nominated his crushing defeat proved that
the United States had come to accept the New Deal
consensus. That consensus, however, took a double hit
from the civil rights acts of 1964-5 (which alienated the
white south) and the Vietnam War (which split the
Democratic Party), from which it has never recovered.
Meanwhile, conservatism steadily gained ground within
the Republican Party, culminating in the nomination and
election of Ronald Reagan in 1980. Conservatives took a
further step forward when George H. W. Bush was
punished for his apostasy on taxes in the 1992 election.
That, however, is politics: today I want to focus policy.
Conservative Republicans, with plenty of help from
Democrats, have been hard at work since 1980 undoing
not only the New Deal itself, but the social and economic
structure that gave birth to it. The primary electoral
muscle of the Democratic coalition came from unions, and
union power was largely broken by the long recession
under Reagan and the beginning of the de-industrialization

of America, as well as by the movement of numerous

industries into the un-unionized South. (Those same
industries have now moved further south, out of the United
States altogether.) Reagan also put a huge dent into the
progressive taxation system that had funded the federal
government since the Depression, cutting high bracket
income taxes while raising the lower-bracket payroll taxes
(and putting the proceeds into general revenues, as I
pointed out here back in 2005.) Deregulation of S & Ls was
followed under Bill Clinton (who restored some fiscal
responsibility but did nothing else to fight the ongoing
trend) by the repeal of Glass-Steagall and the resultant
creation of huge investment banks fueled by depositors'
money and credit cards.All this made money more and
more important in politics, far more important than either
Republican or Democratic ideology. That is why, since the
1960s, no Democratic President has been able to put
through a serious liberal reform. Democrats (at least in
bluer states) talk a good game at election time, and
sometimes put through legislation that looks like change,
but a closer reading always reveals the work of lobbyists at
play. When Bill Clinton threatened actually to reverse the
decline of the government's role during his first year in
office with health care reform, Boomer Republicans (led by
Bill Kristol and Newt Gingrich) announced that he could not
possibly be allowed to succeed and organized all-out
opposition, aided by corporate allies. The same thing has
happened during the last year. The increasing role of
money has two related consequences: it not only insures
corporate influence, but discredits the whole process. It
was extremely difficult even for a lifelong Democrat like
myself to swallow the compromises necessary to get the
health care bill through the Senate. The Medicaid
concession to the state of Nebraska was a national
disgrace, as was the failure to repeal the anti-trust
exemption for the health care industry. (How can anyone
believe that exchanges will increase competition when the
anti-trust laws do not apply?) I'm not surprised that
Massachusetts voters were not impressed.Now the

Republicans have had to cope with one big problem: their

policies are bad for America and bad for the American
people. They have increased the gap between rich and
poor and stripped working people of fundamental
protections. Health care is becoming less and less
afordable. Millions have fallen to predatory lending. Worst
of all, economic de-regulation has brought back the
frequent, devastating boom-bust cycles of the late
nineteenth century. All this has led to periodic Republican
setbacks at the polls, most notably in 2006 and 2008. (We
must keep in mind that we are not fighting today over
ideological or aesthetic preferences about the distribution
of income in America: we are learning again that allowing
rich people to keep too much money simply does not work
for anyone but them.) They managed to moderate their
efects, however, by packing the least democratic part of
our system, the courts.As James MacGregor Burns made
clear in Packing the Court, which I reviewed here some
months ago, judicial activism was not an invention of the
Warren Court, but has played a huge role in our history
since the beginning of the Republic. The Warren Court,
which almost for the first time deployed its power on
behalf of minority rights, was exceptional only because it
favored the Left. During the Progressive Era and New Deal
the courts had thrown out literally dozens of regulatory
measures, concluding, for instance, that state minimum
wage laws were unconstitutional. And on no issue have
Republican activists been more single-minded than
bending the judiciary to their needs. They have worked at
all levels, organizing the Federalist Society, for instance, to
recruit young candidates. Until 2000, countervailing
factors ensured that even Republican Presidents would
veer from ideological orthodoxy in their appointments
occasionally, as Ronald Reagan did to appoint the first
female justice and George H. W. Bush did to pick the
estimable David Souter. But those days are over. During
the last twenty years, Republican appointments have been
far more ideologically committed and considerably
younger and healthier than Democratic ones. Three of the

four Boomers on the Court are now Republicans, and Sonia

Sotomayor, the Democratic choice, is a diabetic. This
strategy first paid a gigantic dividend in the legal coup
d'etat of 2000, when a 5-4 Republican majority disclaimed
any interest in determining the actual wishes of Florida
voters and gave the Presidency to George W. Bush. (Al
Gore's ineptitude was also largely to blame, since he never
even tried to insist on the full statewide recount which
later studies showed would have given him the election.)
The Progressive era, one might argue, had limited impact
itself, but put machinery in place to make the New Deal
possible. This week the Supreme Court took apart a critical
piece of that machinery by using Citizens United to outlaw
any restrictions on corporate campaign spending in the
name of free speech. Justice Kennedy's emphasis on "free
speech" in his majority opinion, in which he professes
devotion to that principle that would rival that of my own
hero Hugo Black, is quite Orwellian. Here is how he
explained the decision of the court not to decide in favor of
Citizens United on relatively narrow grounds--as it easily
could have done--but instead to eliminate a centuries-old
reform.Quote Held:1. Because the question whether 441b
applies to Hillary cannot be resolved on other, narrower
grounds without chilling political speech, this Court must
consider the continuing efect of the speech suppres-sion
upheld in Austin. Pp. 520.(a) Citizen Uniteds narrower
argumentsthat Hillary is not an electioneering
communication covered by 441b because it is
notpublicly distributed under 11 CFR 100.29(a)(2); that
441b maynot be applied to Hillary under Federal Election
Commn v. Wisconsin Right to Life, Inc., 551 U. S. 449
(WRTL), which found 441b uncon-stitutional as applied to
speech that was not express advocacy or its functional
equivalent, id., at 481 (opinion of ROBERTS, C. J.),
determining that a communication is the functional
equivalent of express advocacy only if [it] is susceptible of
no reasonable interpretation other than as an appeal to
vote for or against a specific candidate, id., at 469470;
that 441b should be invalidated as applied to movies

shown through video-on-demand because this delivery

system has alower risk of distorting the political process
than do television ads;and that there should be an
exception to 441bs ban for nonprofitcorporate political
speech funded overwhelming by individualsare not
sustainable under a fair reading of the statute. Pp. 512.
(b)Thus, this case cannot be resolved on a narrower
ground without chilling political speech, speech that is
central to the First Amendments meaning and purpose.
Citizens United did not waive this challenge to Austin when
it stipulated to dismissing the facial challenge below, since
(1) even if such a challenge could be waived, this Court
may reconsider Austin and 441bs facial validity here because the District Court passed upon the issue, Lebron v.
National Railroad Passenger Corporation, 513 U. S. 374,
379; (2) throughoutthe litigation, Citizens United has
asserted a claim that the FEC has violated its right to free
speech; and (3) the parties cannot enter into a stipulation
that prevents the Court from considering remedies
necessary to resolve a claim that has been preserved.
Because Citizen Uniteds narrower arguments are not
sustainable, this Court must, in an exercise of its judicial
responsibility, consider 441bs facial valid-ity.Any other
course would prolong the substantial, nationwide chilling
efect caused by 441bs corporate expenditure ban. This
conclusion is further supported by the following: (1) the
uncertainty caused by the Governments litigating
position; (2) substantial time would be required to clarify
441bs application on the points raised by the
Governments position in order to avoid any chilling efect
caused by an improper interpretation; and (3) because
speech itself is of primary importance to the integrity of
the election process, any speech arguably within the reach
of rules created for regulating political speech is chilled.
The regulatory scheme at issue may not be a prior
restraint in the strict sense. However, given its complexity
and the deference courts show to administrative
determinations, a speaker wishing to avoid criminal
liability threats and the heavy costs of defending against

FEC enforcement must ask a governmental agency for

prior permission to speak. The restrictions thus function as
the equivalent of a prior restraint, giving the FEC power
analogous to the type of government practices that the
First Amendment was drawn to prohibit. The ongoing chill
on speech makes it necessary to invoke the earlier
precedents that a statute that chills speech can and must
be invalidated where its facial invalidity has been
demonstrated. Pp. 1220.2. Austin is overruled, and thus
provides no basis for allowing the Government to limit
corporate independent expenditures. Hence, 441bs
restrictions on such expenditures are invalid and cannot be
applied to Hillary. Given this conclusion, the part of
McConnell that upheld BCRA 203s extension of 441bs
restrictions on independent corporate expenditures is also
overruled. Pp. 2051.Endquote Now one would think,
reading this outraged language, that existing law forbade
the production or distribution of a scurrilous documentary
like Hillary (whom readers will remember that I did not
support myself) at all. Of course it doesn't. Political speech
was free, or almost free, when the first amendment was
passed, in two diferent ways: not only did the law now
protect it, but the production and distribution of written
materials (the only ones then available) was extremely
cheap. In the early nineteenth century, yours truly might
have started and turned out a weekly broadsheet almost
as easily as I now turn out this blog. The point is not
whether material like Hillary can be produced--of course it
can, although it testifies to the decline of American
political discourse in the last half century--the point is who
will have the money to advertise it and broadcast it on
cable television. Just as Anatole France remarked that the
law impartially forbade both the rich and the poor from
sleeping under bridges, the law now impartially allows
David Kaiser, the heads of Citibank and Goldman Sachs,
and Glenn Beck to make their views available on television
to audiences of millions. The problem is that only three of
them will be able to do so. The reformers of the 1900-80
era did not need rocket science to figure out that

increasingly expensive modern forms of communication

would obviously give incredible advantages to the rich and
powerful and thus had to be regulated to give ordinary
citizens a chance to be heard. A 5-4 Supreme Court
majority has now thrown out a century of tradition and
returned us to a form of political Darwinism . . . The current
crisis in American life, I have been saying here now for five
years, will lead either to a kind of New Deal revival or to a
return to the Gilded Age. Karl Rove understands this and
cited William McKinley as his political hero. The court just
brought us immensely closer to a return to McKinley's age.
Those like me who never have and never will abandon the
New Deal principles they learned in their youth inevitably
mourn the likely eclipse, for the rest of our lifetimes, of
those principles. But once again my training as a European
historian at least enables me to say that things could be
much, much worse. Although the Republicans have
frequently bent the law (most notably in 2000 and again
this week), they have successfully undid the work of our
parents and grandparents mainly through legal means.
There is no Fascist movement or dictatorship on the
horizon (although one could still emerge.) It was the
America of the Gilded age to which my paternal
grandfather came around 1900, making my own life
possible. The liberal tradition will survive, even if will only
be revived years after the Boom generation has passed
from the scene. (I do not exclude the possibility that my
own side might still prevail even in this crisis, but it does
not look at all likely.) If the Founding Fathers managed to
design a system that can preserve essential liberties and
survive even severe swings to the right and left, they will
still deserve our thanks.
The Koch Brothers And Supreme Court Justices Antonin Scalia And
Clarence Thomas
Charles and David Koch are billionaire brothers who are

against environmental regulations and any government

regulation in any area of the economy, and they have a
close relationship with Associate Justices Antonin Scalia
and Clarence Thomas of the Supreme Court.
Both Justices attended a conference sponsored by the Koch
brothers and were paid expenses, and the Citizens United
Case which allows unlimited corporate political
contributions was the result in January 2010, which had a
dramatic efect on the midterm elections this past
November, leading to the addition of 63 new seats in the
House of Representatives for the Republican Party.
Now Thomas is being asked to recuse himself from any
Supreme Court review of the Health Care law passed last
year, as his wife is involved with a pressure group working
to undermine the law, along with the Koch brothers trying
to overturn the law as well.
The Supreme Court is becoming a center of conflict of
interest, and really a high level of corruption, as both
Justices Scalia and Thomas are arrogant and have no
sense of propriety in their behavior. When on the Supreme
Court, Justices are supposed to avoid conflicts or
influences that may poison or pollute the whole concept of
fair justice.
Thomas and Scalia need to change their behavior, or they
bring the reputation of the Supreme Court down into the
The Supreme Court Image Being Destroyed By Inappropriate
Actions By Three Of Its Membership! :(
The Supreme Court of the United States is the final arbiter
of the Constitution, and its members have a responsibility
to pursue appropriate behavior in statements and actions
outside of their direct work on the Court.
But now we are witnessing totally unprofessional, unethical
behavior and open bias on the Court by its three most
conservative members: Antonin Scalia, appointed by

Ronald Reagan in 1986; Clarence Thomas, appointed by

George H W Bush in 1991; and Samuel Alito, appointed by
George W. Bush in 2006!
All certainly have a right to their views of the Constitution,
but all three have by word or deed acted inappropriately,
and in so doing, have undermined the image and respect
of the Court, which is so crucial for its continued stature.
Never in history have we seen Supreme Court Justices be
so openly political!
Justice Scalia allowed himself to be exploited by the Tea
Party Movement and Congresswoman Michele Bachmann
of Minnesota, in agreeing to speak about the Constitution
at an openly political meeting on Capitol Hill. This is not
the role for a Supreme Court Justice, as also it is not
appropriate for him to speak before conservative groups
and attack liberal doctrines, as for instance claiming that
women and gays are not protected by the Constitution in
an interview published in a legal magazine. How can he be
seen as being objective and open minded when cases on
such matters come before the Court in the future? Should
he come into cases with preconceived notions? The
answer is NO!
At the same time, Justice Thomas also openly speaks his
mind in public events, even though he never asks
questions in oral arguments. Additionally, his wife, Virginia
Thomas, has been openly involved in Tea Party and
conservative causes, including the group Liberty Central,
which benefited from the Citizens United Case last January,
allowing corporations unlimited rights, for the first time in
a century, to contribute to and fund political causes.
Finally, Justice Alito openly mouthed not true, when
President Obama criticized the Citizens United Case in his
State of the Union address a year ago, and has spoken
before conservative fundraisers, as has both Scalia and
The dignity and prestige of the Court are at stake, as the
Court becomes politicized, not part of the purpose of the
Founding Fathers, when they decided we needed a
Supreme Court in Article 3 of the Constitution, and in the

passage of the Judiciary Act of 1789.

The Evolving Supreme Court: The Dynamics Of Nine Human Beings
Working Together!
The Supreme Court has undergone a lot of change in the
past five years, with four appointments to the Court.
George W. Bush appointed John Roberts as Chief Justice
and Samuel Alito as an Associate Justice, while Barack
Obama chose Sonia Sotomayor and Elena Kagan as
Associate Justices.
Roberts has certainly made his impact as Chief Justice, and
has become controversial because of his activism, which
contradicts his testimony that he believed in stare
decisis, the role of precedent in deciding whether to
accept past Court decisions. Instead, Roberts has become
a confrontational Chief Justice, including criticizing
President Obama for attacking the revolutionary Citizens
United Case of January, 2010.
Alito seemed to be quieter, but this year, he openly
objected to Obamas criticism of the Citizens United Case,
and is now regarded as an outspoken conservative
firebrand in the same vein as Roberts, meaning that the
four conservatives on the Court are very aggressive in
their advocacy. No one would ever accuse Antonin Scalia
or Clarence Thomas as being wallflowers in their activist
views, even though Scalia claims to be an advocate of
originalism, interpreting the Constitution based on the
actions of the Constitutional Convention of 1787.
But the liberal side of the Court has also been much more
outspoken. Associate Justice Ruth Bader Ginsberg, now the
oldest member of the Court, is certainly willing to express
her views, and Justice Stephen Breyer is seen as the
intellectual leader of the liberal wing of the Court.
But even the newest Justices are making clear their liberal
tendencies. Justice Sotomayor is seen by the New York
Times as guiding the liberal wing. Sotomayor spoke up

for prisoner rights, with a challenge by Justice Alito.

And Justice Elena Kagan has joined Sotomayor in what is
described as a subtle shift of the Court, with Sotomayor
more passionate and Kagan as a bridge builder, but yet
seen as strengthening the liberal wing. Kagan is seen as
having the ability to draw Anthony Kennedy, the truly
independent member of the Court, to consider her side of
the issue, much like John Paul Stevens used to be able to
do that in his latter years on the Court.
What this all means is that the Supreme Court is in
constant readjustment of nine human beings, with
evolution of the dynamics fascinating to watch and to
evaluate on a regular basis!
Senator Arlen Specters Farewell Speech: Condemnation Of Chief
Justice John Roberts And Associate Justice Samuel Alito On Judicial
Activism, And Of Right Wing Republicans! :(
Senator Arlen Specter of Pennsylvania is retiring after a
distinguished 30 year career, plus having served in local
government, and on the staf of the Warren Commission
investigating the assassination of President John F.
Kennedy almost a half century ago.
Specter, often seen as a difficult man to work with, and
possessing a large ego, lost his Senate nomination race to
Joe Sestak after switching back to the Democratic Party
that he had long ago been a member of, until he converted
for a long time to the Republican Party.
Specter was head of the Senate Judiciary Committee
during the hearings for the nominations of Chief Justice
John Roberts and Associate Justice Samuel Alito, and today
he denounced both Justices for violating their testimony
during the hearings, which indicated they believed in
precedent (stare decisis), but then proceeding to use
judicial activism and violating the separation of powers
doctrine, particularly in the Citizens United Case in January
of this year, allowing unlimited spending by corporations

after nearly a century of strict regulation by Congress of

such actions.
So Specter joined the criticism of President Obama,
enunciated by the President in his State of the Union
Address, which annoyed both Roberts and Alito, with
Roberts making a clearcut statement of dissent, amid hints
that neither Justice might attend future State of the Union
Addresses, which if actually done, would be highly
Specter also condemned right wing Republicans such as
Jim DeMint of South Carolina, who worked against
moderate Republicans in a number of states, causing the
loss of seats for the party.
One thing about Specterhe does not worry what others
think of him, and his leaving Congress will make it a less
interesting and principled place for sure!
The Roberts Supreme Court: Back To The Gilded Age And The
1920s! :(
New evidence is now available indicating that the Supreme
Court headed by John Roberts, the 17th Chief Justice, since
2005, has become the most pro business Supreme Court
since the 1920s and the earlier Gilded Age, both periods in
which corporations were given license to run amuck over
small business, labor, and consumers in their mad dash for
maximum profits and exploitation!
The Citizens United case in January, allowing unlimited
corporate contributions in political campaigns, upending a
century of regulatory laws on that subject, is just the most
obvious case.
But with a five member majority, with two appointments
by Ronald Reagan, one by father George H W Bush and
two by son George W. Bush, the Supreme Court now has
demonstrated that 61 percent of the time, they favor big
business, as compared to 46 percent in the last five years
under Chief Justice William Rehnquist, and 42 percent in all

the years since Earl Warren became Chief Justice in 1953.

The Chamber of Commerce and other business groups
have been able to get a sympathetic ear from the
Supreme Court in greater percentages as the years go by,
and this is another troubling piece of evidence, shown by
many legal scholarly analyses, that the concept of an
equal day in court for everyone is really a myth!
What is emerging is the disturbing reality of a growing
oligarchy which wins the day in the courts and in the
Congress so often that the idea of a land of opportunity
and the American dream is more than ever, for almost
everyone, except a small elite, a total distortion of reality!
Senator Bernie Sanders Of Vermont: A Truly Principled Progressive In
The Vein Of Ted Kennedy, Paul Wellstone, And Russ Feingold! :)
Senator Bernie Sanders of Vermont is still in process on his
personal filibuster of the Obama-GOP tax deal, which has
caused a major split in the Democratic Party in Congress.
Sanders is an Independent Socialist who allies with the
Democratic Party in the Senate. He was a member of the
House of Representatives from 1991-2007, and was
elected to the Senate in 2006. He has the distinction of
being the longest serving Independent member of
Congress in American history.
While some would say, but he is a Socialist!, the answer
is So what! There is nothing wrong with Sanderss brand
of Socialism, as it is in the tradition of great progressives of
the past, including Robert La Follette, Sr, Robert La
Follette, Jr., George Norris, Hubert Humphrey, George
McGovern, Ted Kennedy, Paul Wellstone, Russ Feingold and
many others.
He is the champion of the working man and woman, of the
middle class, of the poor, of the sick, of the elderly, of the
young, of ethnic minorities, of ALL average Americans who
will NEVER achieve the so called American dream of
becoming wealthy. All they want is a fair shake from their

government, instead of a government that favors the

wealthy and upper class and corporations that promote
monopoly, greed and selfishness.
Sanders is to be applauded for his principled stand, his
high moral and ethical beliefs, and his willingness to
remind us of how desperate conditions are for millions of
Americans, who cannot aford gasoline, food, rent, medical
costs, clothing etc on their struggling low income jobs if
they are fortunate enough to have one, and the millions of
Americans who have no work, are losing their homes, and
whose children are facing the scarring nature of economic
Sanders filibuster speech, lasting seven hours at this point
with no set end in sight, is a speech for the ages, a speech
which should be honored historically as much as the
speech of Martin Luther King, Jr. in 1963, along with the
great principled speeches of the people mentioned above,
and others not named.
If only we had one hundred Bernie Sanders in the Senate,
or a combination of Sanders and the various progressive
leaders mentioned above, who are part of our history, we
would be a far better nation.
Instead, through the ignorance and fear of many poor and
middle class citizens, plus manipulation by special
corporateinterests in the recent campaign, and assisted by
the Supreme Court Citizens United decision in January, the
country is now faced with the reality of a Republican Party
which is going to make the plight of the American people
MUCH MORE NIGHTMARISH over the next two years!
They have Barack Obama and the Democratic Party in a
tough position for the moment, necessitating,
unfortunately, the striking of a deal just to accomplish
short range goals.
But starting next year, Barack Obama and his party MUST
fight the good fight that Bernie Sanders represents, and
work to convince the American people that the Democrats
are indeed the party of the people who have their best
interests at heart, and deserve control of both houses of
Congress and the White House in the 2012 elections!

Senator John McCains Parting Tribute To Senator Russ Feingold!

Senator John McCain showed his better side today in the
Senate chamber when he rose to praise in an efusive way
his colleague, Democratic Senator Russ Feingold of
Wisconsin, who was defeated in November by a Republican
and Tea Party favorite Ron Johnson!
Without a doubt, the defeat of Senator Feingold was the
worst loss for progressives of anyone in either house of
Congress! McCain paid tribute to his partner in the McCain
Feingold legislation, which unfortunately, has now been
destroyed by the Supreme Court in its Citizens United
But McCain also paid tribute to the principles and
convictions of Senator Feingold, calling him courageous
and dedicated, inspiring, a great role model and
The country is the loser in the forced retirement of Senator
Russ Feingold, and hopefully, somehow, we will see Russ
Feingold in some other capacity in the future, as his
wisdom and brilliance is sorely needed in the American
South Florida Conservative Talk Show Host Joyce Kaufman And
Congressman Elect Allen West: Two Wingnuts That Will Make
News! :(
One of the most notable Tea Party Movement favorites who
won election to the House of Representatives last week
was Allen West, a Lieutenant Colonel in the Army, who was
forced to leave the military after inappropriate treatment
of a prisoner In Iraq in 2003, and who has been associated
with right wing, pro gun groups!
With large amounts of money, including support from Karl

Rove associated groups, West defeated Congressman Ron

Klein of Boca Raton, in one of the most confrontational
campaigns in the country!
West is a wing nut who will make lots of news with his
comments and actions, seen by many as an African
American male counterpart of Michele Bachmann,
Congresswoman from Minnesota, who is constantly making
outrageous statements and calling for extremist actions
against the opposition party, and confrontation in foreign
It is bad enough that West will be a nightmare in
Congress, but he has now appointed right wing nut job
talk show host Joyce Kaufman, who is a South Florida
wannabe replica of Glenn Beck, Rush Limbaugh, and
Sean Hannity on the local level!
Kaufman has been an outrageous talk show host on WFTL
in Fort Lauderdale, spewing poison, hate, and nastiness,
calling for violent actions against illegal immigrants, war
against Islam, and ridiculing Democrats in despicable
language, such as calling Congresswoman Debbie
Wasserman Schultz, Debbie Wasserman Schmutz (dirt in
Yiddish)! She has used similar assaulting language against
other Democrats, including former Congressman Robert
Wexler, and other Democrats on the national scene, and
has been totally negative in every way toward President
Barack Obama!
She will now gain national attention, which she craves, as
the Chief of Staf to Congressman West, and she is sure to
be a lightning rod, drawing controversy by her
statements and actions, instead of being a quiet, behind
the scenes figure as Chief of Staf!
It is odd for a political figure to pick a media personality to
be the leader of his staf! It is also weird that Kaufman,
who constantly promotes states rights and hatred of the
federal government, will now be a federal government
employee and be paid by taxpayers for her work!
Interesting example of total hypocrisy on her part, and it
also brings to mind that she somehow expects to be a
correspondent for her radio station while working for

West, which is seen by people on Capitol Hill as a conflict

of interest, and totally inappropriate, and possibly illegal to
But then conservatives like to rail against government, and
then feed at the public trough as they pursue their agenda
to make this country a land of the elite doing everything
they can to make the rich richer, the poor poorer, and the
middle class slipping constantly down in the direction of
The voters of the 22nd Congressional District of Florida will
eventually realize the blunder they have made, brought
about by large amounts of corporate cash without limit,
thanks to the Supreme Court decision in the Citizens
United case in January of this year!
The Suspension Of Keith Olbermann By MSNBC: Is It Appropriate?
NO! :(
Progressive talk show host Keith Olbermann of MSNBC has
been suspended because he gave political donations to
Democrats who ran for office in Arizona and Kentucky,
working against the candidacies of Governor Jan Brewer
and Senate candidate Rand Paul.
MSNBC felt that a talk show host should not be permitted
to contribute to candidates, as it compromises them on
their show.
Does this make sense? NO, as is there anyone who does
not know by watching Keith Olbermann, that he is a
progressive voice, and that he favors the Democratic
Does being on a talk show mean that one loses his
freedom of speech, which contributing to a political
campaign is, according to the Supreme Court in the
January 2010 Citizens United case, that has allowed
unlimited contributions by corporations?
Is not MSNBC a corporation which can contribute to
campaigns, as Fox News Channel has done to the

Republican Party? Why is it that employees of a

corporation dont have the same right to contribute that
their employer has?
Is there anyone who does not know how Rush Limbaugh,
Sean Hannity, Bill OReilly, Glenn Beck and others feel
about the Republican party?
The only people in news media who should be discreet
about politics are those who simply report the news, but
Fox News Channel and MSNBC are stations that promote
an agenda, so what is good for one should be the same for
the other!
MSNBC has made a mistake in suspending Olbermann, and
should reverse its decision, and bring back to the airwaves
one of the most insightful and principled progressives who
are engaged in the fight against the Right Wing, corporate
takeover of this country, which the Supreme Court has,
regretfully, encouraged!
Corporate Threats On Employees And Politics: 1896 And 2010! Back
To The 19th Century! :(
More than a century ago, corporations were dominating
our politics and corrupting it in what was called The
Gilded Age!
Many corporations pressured employees to vote for the
Republican party as the party of big business and its belief
in laissez faire capitalism. So when William Jennings Bryan
was nominated by the Democrats in 1896, corporations
became intimately involved in working to defeat him,
depicting him as a socialist, a Marxist, a radical, and an
extremist. Many corporations warned their workers that if
Bryan was elected, the companies would be firing workers
and eventually shutting down!
The tactic worked, and conservative William McKinley won
the Presidency, continuing GOP and big business
dominance of American politics. Only with his tragic
assassination in 1901 did the nation gain Theodore

Roosevelt, who represented the beginning of progressive

change, including some of the ideas and visions of William
Jennings Bryan!
Now, more than a century later, and thanks to the
Supreme Court decision in the Citizens United case in
January of this year, corporations are again running amuck
in their determination to defeat the Democrats, and
reverse the reforms brought about by President Barack
Obama! They are spending inordinate amounts of money,
and promoting distorted commercials to scare and
intimidate voters, either not to vote, or to vote out of fear
and trepidation of what Barack Obama represents, a very
typical depiction similar to that used against William
Jennings Bryan more than a century ago!
But even more outrageous is what one franchise owner of
a McDonalds in Ohio has doneto warn workers that if the
Republicans do not win the political races in the state, that
their measly pay will be lowered and benefits will be lost!
This is just one example of how corporations are
intimidating their employees and trying to fix the election
results, and it is evidence of how labor rights hard won
over the past century are now endangered by newly
gained corporate powers that make us realize that the
Supreme Court is setting the nation backward, before the
reforms of the Progressive Era, to the traditional corporate
dominance and abuses of the Gilded Age!
Are Americans going to sit back and allow a century of
political, social and economic reform to be wiped out by
the reactionary desires of corporate America, which
caused the Great Depression and the Great Recession?
Will the Supreme Court be allowed to take us back to the
19th century Gilded Age, and repeal the 20th century?
One thing is clear: no matter what happens on November
2, the struggle for progressive political, social and
economic reform, which many had thought had been won
under Theodore Roosevelt, Woodrow Wilson, Franklin D.
Roosevelt, Harry Truman, John F. Kennedy, Lyndon Johnson
and Barack Obama, will have to continue!

We may have to redo old battles for reforms we thought

were permanent, and the division that exists in this
country may become greater than ever, as progressives
cannot allow the return of the 19th century and the Gilded
Age without continuing to fight for change!
citizens united
Citizens United v. FEC
Lochners Return
This post is part of an ACSblog symposium marking the
one-year anniversary of the landmark decision Citizens
United v. FEC. The author, Daniel JH Greenwood, is a
professor at Hofstra University School of Law, where he
researches corporate governance and the role of
corporations in our economy and democracy. He coauthored an amicus brief in Citizens United on behalf of
the American Independent Business Alliance.
A year later, Citizens United still looks like the
modern Lochner v. New York. This case may well come to
symbolize the Court's contribution to our modern Gilded
Age and its destruction of the foundations of prosperity
and democracy. Lochner symbolizes the Old Court's
turning the Civil War Amendments on their heads. The
Fourteenth Amendment promised African-Americans, and
indeed all Americans, the rights of citizenship, equal
protection and due process of law. The Court, instead,
ruled that American citizens had fought the Civil War in
order to forfeit our right to use democratic government to
protect ourselves against the arbitrary power of
"malefactors of great wealth." The Gilded Age's
concentration of power and wealth in the hands of a few,
symbolized and furthered by Lochner's rejection of basic

American values, led straight to the Great Depression.

Neither democracy nor market capitalism can long survive
if entrenched economic power is permitted to set the rules
of competition so that it always wins. When ordinary
Americans lacked the power to demand wages high
enough to buy the products and services they produced,
the resulting shortage of demand nearly destroyed the
system. Today, we are again in a crisis caused by a
similarly radical upward shift of power and wealth. In
sector after sector, economic incumbents have amassed
enough power to be able to shift the rules in their own
favor. We have raised CEO and banker pay, at the direct
cost of ordinary employee wages, to the point where our
major firms increasingly resemble the world's
kleptocracies. The wonder is not that so many have
collapsed, Enron-style, into complete corruption or, and housing-style, into utter incompetence and
misallocation, but that so many manage to last so long,
emulating the Soviet and Third World autocracies in their
fantastically wealthy elites and long slow slides into
collective failure.
I'm uncertain where in the world these gigantic mama's
boys come from (ex: NPR narrator who 'oh mama!')
the abundance of pornography shows how many males
grew up as unwanted children, with viscious curiosity
about women
capitalism will fail because the basic premise is to do unto
others unlike you will do for yourself

foreshadows maid...narrator mentions as vamj is moving

about with his assistant




political volunteer who is in fact homeless (black) to juan
exiting obelisk after waiting room
He wasnt getting in because he was blackbecause he
was black?of course. What? Just look around, this sort of
thing happens all day long everyday. You didnt know? You
really believe the American dream bullshitrhetoric? Just
use your gut an your nose and wake upha ha! Senator to

Human beings have, by nature, a fault to balance out their

qualities, and predict what people want and provide it
best; out of balance creates motion, but needs to be
addressed later because is emotionally cankerous (think of
brandy getting in a fist fight)
business people in obelisk
it's cold as a knife, isn't it, when noone gives a fuck

vamp dad says as part of conversation to associate while

they leave the deli with their cofees as juan is getting
change and bill for cofee out of pocket
***milling about outside obelisk after meeting

Once you understand

[said by vamj to juan , obelisk waiting room]
Acquisition without knowledge
***while leaving meeting, leaving foyer, leaving building
**sign held outside obelisk building after waiting
room**police round them up**juan has disdain for them**
Protested road buildingwe worship the dog
Empires do not deal with land, they deal with TIMEmake
emperors birthday year 0, etcthis way all things lead to
them, all schedules

***juan has a hot dog AFTER leaving the meeting and the
obelisk building
'hard boiled'
**vadim says
colin wilson, criminal history of the world
(He might have added that he is also one of the few
creatures who has no instinctive revulsion against
cannibalism -dogs, for example, cannot be persuaded to
eat dog meat.)
Koestlers explanation is that the human brain is an
evolutionary blunder. It consists of three brains, one on top
of the other:
the reptile brain
, the mammalian brain and
, on top of these, the human neo-cortex.

The result, as the physiologist P. D. Maclean remarked, is

when a psychiatrist asks the patient to lie down on the
he is asking him to stretch out
alongside a horse and a crocodile.
while there is very little violence between groups of
animals in the wild, this alters as soon as they are kept in
captivity and subjected to unnatural conditions such as
shortage of food and space; then, suddenly, they become
capable of killing one another.
This is what happened to man when he became a city
dweller. The need to defend food-growing territory from
neighbours in nearby cities made man into a warlike
Moreover, cities had to be defended by walls, and this
eventually introduced an entirely new factor:
And this, it now seems fairly certain, was the factor that
finally turned man into a habitual criminal.
+Juan walks out onto street