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October, 2008



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Wall Street Tumble Exposes Worms In The Capitalist Apple
By Edward W. Miller, MD

Thou hast taken usury and increase, and thou hast greedily gained of thy neighbors by extortion, and thou hast forgotten me saith the Lord." -Ezekiel 22:12 (King James Version)
It could probably be shown by facts and figures that there is no distinctly American criminal class except Congress."-Mark Twain

During the second weekend in September, Wall Street jolted an already anxious public with news that a failing Merrill-Lynch was being purchased by the Bank of America, that America's largest investment bank, Lehman Brothers, was declaring bankruptcy after the Feds had refused to bail them out; and that AIG our largest insurance group, reported $60 billion in bad debts, its stocks losing 65% in value.

The Dow on Tuesday dropped some 504 points. These market losses, however, plus our overall economic slowdown, which Bush and his Wall Street financial advisors repeat, "is not a real Depression," didn't sprout up over night like a mushroom on the lawn, but has been spreading like a mold in our financial structure for years.

Last summer's stock market bubble and shaky recovery which, as it burst toward the end of August 2007, had cost investors over $6 trillion in US dollars, was echoed in England where thousands of Brits stood in line to demand their money back from one of their country's largest banks. Responding to this precarious August weekend, Asian stocks dropped in value, Japan's Nikkei Index fell more than 4% and the dollar was down sharply against the Yuan, yen and Euro.

As the March 17th 2007 Washington Post had reported: "The Federal Reserve took dramatic action on multiple fronts to avert a crisis in the global financial system." The Feds, promised some $200 Billion as a "lender of last resort" for 20 major Wall Street firms, a role it had played since its founding in 1913, but only for commercial banks. In 1902 and again in 1909, J.P. Morgan personally set aside funds to bail out failing banks.

This $200 billion offer of ultra-safe Treasury securities to our nation's banks and major brokerage firms, was in exchange for a variety of collateral options-including the very mortgage-backed securities that had created the financial crisis.

Banks quickly unloaded some of their not so secure assets, freeing up money, as Wall Street noted: "to keep the nation's economic bloodstream flowing." This bailout by the Feds did little to stem the oncoming financial storm. As Peter Schiff noted (DINL March 16th) "Apparently the Fed now stands willing to assume any mortgage-related risk that no other private entity would touch."

Since this April the US economy has worsened. The July 9 SF Chronicle said Levi Strauss and Co. had announced their profit in the second quarter plunged 98% to $701,000 compared to $45.7 million the year before. General Motors was closing four US plants and laying off 20,000 workers, while asking management-level employees to accept early retirement. The SF Chronicle also reported that by June, the US workforce had lost 709,000 jobs in 2008, and that STARBUCKS was closing 600 stores and laying off 12,000 workers, and, as THE PROGRESSIVE (May, 2008) noted: The SHARPER IMAGE declared bankruptcy, closing ninety-six US stores.

As the downturn continued, on September 16 Hewlett-Packard announced a lay-off some 24,000 jobs over the next three years, nearly 8% of its workforce.

Hidden from our largely uninformed public, while fuelled by a virtual deregulation of financial capital markets, beginning in the 1990's ...widespread corruption and fraud was producing a housing bubble of epic proportions. Mortgage borrowing rose more than $4 trillion between 2003 and 2006 with $2 trillion issued in sub prime mode.

"Sub prime" is "nonspeak" for inadequately-funded or often, criminally-structured mortgages, programmed to fail and frequently sold to trusting but ignorant buyers, many of them blacks or Spanish-speaking families, completely unaware of what they were signing at the bank.

As the Stock market continued to tumble, first on the list, the Feds gave JP Morgan Chase, a major Wall Street bank, $236.2 million, allowing them to buy out the 85 year-old Bear Steans investment firm, at a price representing only 1% of what Bear Stearns had been worth only ten days before. The investment firms' stock had fallen from $70 to only $2 a share. Fallout from the Bear Stearns collapse and buyout was not long in coming.

KPFA's financial reporter on Amy Goodman's "Democracy-Now" noted that California Teachers Retirement Plan, investment in Bear Stearns, "had just lost $85 million." Meanwhile mortgage foreclosures by the tens of thousands were presenting themselves across the country. The HOPE NOW data program reported in April, 2008: "More than 2 million loans were at least 60 days delinquent."

While the big boys in Wall Street were enjoying the Fed's bounty, a considerably smaller largess was directed at the American Taxpayer from Bush and Congress: On January 24th, 2008 Bush and leaders of the House of Representatives provided almost $100 billion in tax rebates to 117 million taxpayers and another $40 billion in tax reductions for businesses " in a bid to avert a recession." Individuals with adjusted gross incomes of $3,000 to $75,000 received rebates worth $300 to $600. Most checks to families and individuals arrived in July, but did little to relieve rising costs of food and gas as late mortgage payments rose across the country.

Like all of these "bail-out" deals, the Fed's promised, money will eventually come out of the taxpayer's pocket. Printing extra money simply dilutes out the basic value of the US dollar on the world market, making everything we buy more expensive, while threatening the economy of other countries.

On 16 July, frightened by the INDYMAC collapse, the U.S. government announced a "massive aid package" to the two shareholder owned companies: Fannie Mae and Freddie Mac. According to a Reuters dispatch, that plan, which won approval from Congress, was designed to "head off a potential meltdown in financial markets."

Both Fannie and Freddie bought mortgages from banks and other lenders and either kept them or repackaged them into securities sold to investors as hedge funds etc.

According to the SF Chronicle, 25 June, 2008: "Three months after Fannie Mae and Freddie Mac won the freedom to step up home-loan purchases, these government-chartered finance companies were doing what critics in the Federal Reserve and Congress had predicted: Instead of using powers granted by Congress to buy jumbo loans, Fannie Mae and Freddie Mac were purchasing their own mortgage-backed securities, helping reduce losses... Since the rule-change took effect, in March, Fannie Mae had repackaged $24 million in jumbo loans into securities, while Freddie Mac added $220 million. In April these two spent more than $ 32.4 billion buying their own instruments. "Doing it to others" again, in typical Wall Street fashion.

On September 9th, Glenn Somerville and Al Yoon reported, "The U.S. government plans to put government sponsored mortgage finance companies Fannie Mae and Freddie Mac under federal control, "in what could be the largest financial bailout in the nation's history."

The two government sponsored enterprises (GSEs) own or guarantee almost half of the country's $12 trillion in outstanding home mortgage debt. The ongoing failure of millions of "sub-prime" mortgages with foreclosures across the country, the increasing reported lack of "affordable housing", a consumer debt of $2.52 trillion, and the daily not-quite believable assurances by Wall Street, our president and big money that "the economy is basically strong," comes as no surprise to those who noted Congress' surrender to Wall Street lobbying over the past half century.

On June 23rd, 1947 a newly elected Republican Congress passed the Taft-Hartley Act over president Truman's veto. The results of this assault on American labor appeared gradually over the next years as American dads, who for decades had fed and clothed their families paid their mortgages, educated their kids and provided a safe retirement, found their paychecks no longer covered all the bills, and began to accept 50 or 60 hour weeks, or found a second job. A few years later mother joined the workforce to bring home needed cash.

According to Steve Fraser, author of a recent book on Wall Street: "Beginning in the Reagan Administration markets became deregulated and a relationship called "crony capitalism" developed between government and big business. The present huge pyramid of debt, both public and private was made possible by thirty years of Congress' relentless deregulation of our financial markets, culminated, during the Clinton Administration, in the 1999 repeal of the Glass-Steagall Act, which Act had prohibited banks from dealing in high-risk securities. In effect, Washington supposed regulators had become passive enablers to Wall Street's financial binge drinkers. As columnist Robert Scheer pointed out (March 12th SF Chronicle): "The Clinton-backed Gramm-Leach-Baily Act of 1999 called the "Financial Services Modernization Act," permitted banks, stock brokers, and insurance companies to merge and was exacerbated by Bush's appointment of rapacious corporate foxes to watch the corporate hen house." They will take care of their own...The action was made possible only by the federal government using your tax dollars to pick up the bad debt of the banks."

This Act overturned the Glass-Steagall Act, a major regulatory achievement of the New Deal.

The WALL STREET JOURNAL had reported that Congress' attempt to rein-in Wall Street's reckless pursuit of sub prime money with the 1994 HOME OWNERSHIP AND EQUITY PROTECTION ACT which polices high-interest loans, proved ineffective, because its trigger was set too high."

The next step down the economic slide was the subtle onslaught of the Credit-Card industry which began mailing their plastic cards out by the millions to unwary shoppers who, lacking enough cash at the Safeway checkout, found it increasingly easy to run that pretty piece of plastic through the machine. "In 2006 banks sent out 8 billion credit card applications, a 30% increase since 2005. Credit card companies spend an average of $56 to sign up a new customer and since 1996 when the Supreme Court struck down limits on credit card fees, the average late penalty jumped 102% and the average fee for exceeding credit card limits rose 138%. Before long Americans found themselves with billions in credit-card debt. -(Mother Jones Sept 2007)

The acceptance by banks of sub-prime mortgages began over ten years ago as deregulation led to corporate theft in both Republican and Democratic administrations... In the past, mortgage holders who faced economic problems might go to their banker and negotiate changes in term limits or interest rates. Today their banker, who has bundled that mortgage along with a thousand others and is gambling with it on the international roulette wheel of "derivatives " or "hedge funds, "just can't even find your mortgage papers."

Corporate corruption is present at the highest level. On April 1st, 2008 (Reuters) - An internal JP Morgan Chase (JPM) memo titled "Zippy Cheats & Tricks" offered a peek into those dubious lending tactics underpinning the housing market's downward spiral. This J.P. Morgan Chase internal memo titled: "Zippy Cheating Tricks," sneaked to the press by an employee (who has since been fired), says it all: The piece was originally obtained by reporters at THE PORTLAND Oregonian newspaper who printed it on March 27th, 2008.

The sneaked memo outlined in step-by-step instructions just how to beef up mortgage applicants' statement in order to qualify them for home loans they otherwise could not afford:

The underpinnings of the present economic depression, however, cannot be blamed wholly on a Congress corrupted by big money. Surprisingly, our US Supreme Court has twice played a significant role in weakening the position of labor while subverting politics at both state and national levels. A role completely hidden by the media from the American people as Bill Moyers comments: "Our Fourth Estate has become a Fifth Column."

The first time our Supreme Court upset the post New Deal relationship between labor and big business is described by David Korten in his book: The Post-Corporate World, Life After Capitalism (pp.185-6): "In 1886 the case of Santa Clara County vs. Southern Pacific Railroad Company, the U.S. Supreme Court decided that a private corporation is a person and entitled to the legal rights and protections the Constitutions affords to any person ...the doctrine of corporate personhood, which became a cornerstone of corporate law, was introduced into this 1886 decision without argument. According to the official case record, Supreme Court Justice Morrison Remick Waite simply pronounced before the beginning of arguments in the case of Santa Clara County vs. Southern Pacific Railroad Company, and the court reporter duly entered into the summary record that:

"The defendant Corporations are persons within the intent of the clause in section 1 of the Fourteen Amendment to the Constitution of the United States, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws."

Thus, a two-sentence assertion by a single judge elevated corporations to the status of persons under the law, preparing the way for the rise of global corporate rule, and thereby changing the course of history."

The second decision, also by the US Supreme Court, which put another finger on the scale of Business/labor relations, occurred in 1978:

In the case of THE FIRST NATIONAL BANK OF BOSTON vs. BELLOTTI (1978) the United States Supreme Court ruled 5-4 that corporations had a First Amendment right to make contributions in order to attempt to influence political processes. Justice Lewis Powell ruled that a Massachusetts criminal statute prohibiting the expenditure of corporate funds "for the purpose of influencing or affecting" voter's opinions infringed on corporations protected speech in a manner unjustified by a compelling state interest.

As noted (, April 2007), "Corporations regularly wield immense Supreme Court-created power to defeat citizen ballot initiatives and referenda that are disfavored by company executives, and increasingly corporations and running their own initiatives. While it is far easier for corporations to defeat citizen initiatives, than to pass their own, merely threatening to mount a costly initiative campaign is sufficient to cow local governments into complying with corporate agenda.

Supreme Court decisions are playing out in local and state politics. According the WALL STREET JOURNAL, "between 2002 and 2006 industry lobbyists, poured tens of millions of dollars into state-level campaigns to prevent or undue sub prime lending regulations." Both Georgia's and New Jersey's legislatures passed laws to strengthen the Home Ownership and Equity Protection Act, but in both states, surrendering to threats from STANDARD AND POOR to withdraw their rating of securities, both legislatures unanimously deleted effective sections of their bills.

Since Bellotti, however recent Supreme Court decisions indicate increased deference to campaign contribution limits. Much, of course will depend on whether the Republicans or Democrats prevail in November and the political philosophy of their appointees to the Supreme Court bench. It is interesting that both Fannie Ma and Freddie Mac have made some millions in contributions to both the Obama and McCain campaigns.

What is the likelihood that a new Congress will both intelligently weather the depression, and two wars, and return this country to the people? Not one of our politicians campaigning for the 2009 election, except Ralph Nader, has mentioned that repeal of the Taft-Hartley Act should be on Congress's agenda, nor has the restoration of Congressional monitoring of business, weakened by the Glass-Steagall Act's repeal been mentioned.

Unlike Franklin D. Roosevelt, who faced the 1930s depression with a well-funded US treasury, and thus was able to pit millions of unemployed to work in PWA, WPA and TVA, our next president will be faced with a government trillions in debt and losing two wars... Congress must also halt the hemorrhaging of tax revenue by closing overseas tax shelters, revoke the Bush Jr. tax loopholes for the rich, and take the cap off Social Security contributions, forcing the wealthy to pay their share.

Next, we need to collect a tariff on all goods manufactured abroad regardless of their corporate ownership... Washington must learn to support its working class. Today EU countries charge either a VAT (value-added tax) or tariff on imports from the US and other non-EU countries. French importers pay VAT (Value-Added-Tax) at the rate of 20.6%. Such a tariff charged on overseas manufactured goods would provide billions to support our social services, encourage US manufacturing to remain on shore and have little effect on our import market. Tell this to McCain and Obama.

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