Con Man Overboard: Wall Street Prepares to Pull the Plug

Fat Cat on the BeachLately I’ve been thinking a lot about the economy. Not our economy, the shadow economy run by the corporate masters of America. You can’t see it. No one can. But trust me, it’s booming.

It’s estimated that trillions of dollars from corporations, wealthy individuals and governments of small and corrupt nations are teeming through offshore accounts, robbing the home countries of domestic tax revenues. An Economist special report on offshore tax havens in February of this year cites, “James Henry, a former chief economist with McKinsey,” as saying he “believes the amount invested virtually tax-free offshore tops $21 trillion.”

Corporations, now considered people by the U.S. Supreme Court, like to refer to this money as “dry powder” just “sitting on the sidelines” waiting to be invested at any time. Indeed it is, in the most nefarious way possible.

In this magical world of paper finance the “too big to fail” banks are royalty. Since the banking collapse of 2008, they have emerged even bigger, far more profitable and just as leveraged.

Margin debt ratios, the extent to which financial institutions are leveraged in equities, are once again at pre-crash levels. After cooling off in the initial aftermath of the crisis, banks have steadily dipped their big toes back into the debt pool and begun packing on leverage at alarming rates. What’s even more insulting than the obvious recklessness this presents is that they’re not even using their own funds. The Federal Reserve has directed the U.S. Treasury to print money like mad since the crash in an effort to maintain liquidity within the system, with the banks all-too-happy to gobble it up. Given the ridiculously low interest rate environment maintained by the Fed since this time, it makes sense that the banks would take cheap government money and reinvest it.

It’s where they have invested it that warrants examination.

The easiest place for the public to spot the massive flow of liquidity is in the equity markets. The Dow Jones Industrial Average has more than doubled since it bottomed out near 6,600 immediately after the crash. And while some corporations have indeed posted substantial profits the past couple of years, overall performance and profitability are nowhere even close to explaining the gains on the Dow.

bank pull quoteThe next, most obvious place bank liquidity showed up, was in the commodities markets. The price of oil and certain agricultural products have been high for so long we have forgotten how outrageous the pricing truly is. Non-productive speculation in the commodities market has been upwards of 50 percent over the past few years, a phenomenon Dodd-Frank has yet to fix. This essentially means that nearly half of the price that you pay for a given commodity such as gasoline or milk is due to a bunch of high-frequency traders sitting at computers in Atlanta, Chicago and London.

Cheap, easy money from the Fed also means the dollar is relatively weak compared to foreign currencies. This works to the advantage of U.S. export companies, for now. But if our money is cheap, then by definition the flipside of this equation is that money is expensive in other places. The combined effect of a weak dollar and rampant speculation means that we are basically exporting inflation around the globe. The problem here is the timeless axiom: “What goes around, comes around.”

There are a couple of policy issues at play right now that should give everyone in the United States pause. The first is that the Federal Reserve has already indicated that its bond-buyback program is slowly coming to an end. As such, interest rates are gradually beginning to climb. Anyone with an adjustable-rate loan should pay even closer attention to this trend. The other consideration is that the rules of engagement in the swaps and derivatives markets haven’t changed all that much since the banking collapse. Therefore, there are still hundreds of trillions of dollars at stake in markets that no one can see.

Now add to the mix that regulators believe they will finally be able to put in place position limits on a good chunk of the activity in the derivatives market by the end of the year, and we are set for a few hairy months of fast and furious transactions as companies look to close out riskier investments. These factors alone foretell a period of volatility, particularly when the “recovery” hasn’t been so robust. Oh, and there’s a little matter of who will be the next chair of the Federal Reserve, which actually matters. A lot.

Having just vomited a bunch of financial mumbo-jumbo, now let me go back to where we began.

I’ve just given you a cursory explanation of why I believe we’re in for some serious upheaval in the financial markets between now and the end of the year. Over the next couple of months I think we will see interest rates continue to climb, a huge (albeit temporary) sell off in the commodities markets as the dollar rises and regulations tighten, and the equities market will be pounded. All of these things, were they to happen, would of course negatively impact most Americans. Higher loan costs, reduced value in pensions, and the beginning of inflation would be crippling to the American economy right now considering how tenuous the recovery is and how, according to the Associated Press, four out of five Americans are either living paycheck to paycheck, unemployed or working part-time, or below the poverty line.

Guess who will be just fine?

Because the banks are still allowed to engage in proprietary investing–meaning they can own the actual products they trade on the markets–and have trillions of “dry powder” sitting “on the sidelines,” they are more than poised to take advantage of what lies ahead. They’ll be dictating how, when and to what extent it will happen and doing so without leaving fingerprints.

Think of it like the mafia. Banks are like caporegimes and hedge funds are their hit men. Using government money the banks pack on debt and send funds to their offshore subsidiaries that, in turn, invest heavily through the hedge funds registered to places like the Caymans or Virgin Islands. Any time the big banks want to pull the plug on the equities market, they’ll do so without hesitation because they’ll have 10 times the money betting that it does.

It’s the perfect con.

Good thing we’re on to them. The corporate elite and the politicians who do their bidding will have to get up pretty early in the morning to fool the American public again. Unless, of course, there’s some big distraction like a new war in the Middle East or something. But that would be truly ridiculous.

There’s no way we’d ever fall for that old gag again.

Occupy Wall Street: “You Should Have Expected Us”

By not asking for anything in particular, they are inclusive of every person and every idea in general. In modern-day parlance, this movement is “open source.” Anyone can add to it, alter and improve it.

San Francisco has it. So does Boston. It’s heading to Phoenix, Chicago and even making its way across the border to Toronto. “It” is the movement the media only acknowledge when it shuts down a bridge or broadcasts police brutality. “It” is the movement that Glenn Beck claims will lead to “gas chambers, guillotines” and “millions dead.”

The Occupy Wall Street protest is now in its third week. It’s stubborn, plucky, organized and here to stay—weather and cops be damned. For the third week in a row I am dedicating this space to an undertaking so captivating it has garnered grassroots support throughout the country despite obvious and ignominious attempts to stamp it out. Forgive me as I provide some context to my preoccupation by regurgitating a segment of this column written only days before the occupation began:

Those in my generation lost the chance to capture the spirit of revolution by looking the other way for a decade. We bought homes, started families and tried to return to ordinary lives during otherwise extraordinary times. We slept. Younger generations have substituted Haight-Ashbury with Facebook and protests with Twitter. In their frenetically hyper-connected lives they are ironically disconnected digital beings living a purgatorial existence that knows neither revolution nor responsibility. In fairness, how exactly would one protest genetically modified foods, the derivatives market or the carried interest tax loophole?

As it turns out, America’s youth is keenly in touch with its rebellious nature and wholly capable of harnessing it through social media and on the ground. Moreover, it seems, they know exactly how to protest derivatives and tax loopholes. Occupy Wall Street is not an exercise; nor is it a group of out-of-work malcontents and spoiled brats as some pundits and commentators would have you all believe. But given the disgraceful job my colleagues in the “traditional” media have done covering the last three weeks, it’s little wonder there is such a misconception about the protest or the character of the protestors themselves.

Fox News, CNN, MSNBC and other hack, ratings-hungry news operations have done their level-best to seek out the most outrageous or ill-informed members of the movement in an effort to discredit the entire affair. This has served only to embolden the members of the occupation and play directly into the hands of the organizers who are able to maintain their underground “street-cred” while pointing a finger at corporate media with righteous indignation. It’s one of several ingenious ploys (or anti-ploys depending upon which side of the barricade you reside) being exploited by Anonymous, the group at the heart of the protest.

Most of the news reports and the people I speak with about Occupy Wall Street have the same question: “What do they want?” It’s little wonder why the reporting has been so poor because the question itself fails to grasp the meaning of the gathering. Asking “What do they want?” is placing the cart before the horse. It’s not that it’s a bad question; it’s simply impossible to answer. The purpose of Occupy Wall Street is to begin a dialogue among disconnected citizens and encourage a process of self-discovery. Although they have posted a declaration of principles that lists pernicious policies and highlights social and economic inequities, it only serves to provide the framework for the discussion.

But behind this grassroots and organic process is an organizational brilliance in the restraint shown by Anonymous and the surreptitious group in charge of the demonstration on the ground. By not asking for anything in particular, they are inclusive of every person and every idea in general. In modern-day parlance, this movement is “open source.” Anyone can add to it, alter and improve it. It’s why dimwitted reporters have a hard time grasping it and why renowned authors such as Chris Hedges and Jeff Sharlet have been here to stand shoulder-to-shoulder with young people in Ron Paul tee shirts, Vietnam Veterans, union construction workers, lawyers and even some Tea Party activists. They have managed to truly make this the “people’s movement.” Or, as they say: “We are the 99%… and so are you.”

Life In The Park

As for life in Zuccotti Park, the scene is rather surreal. Between the time I first visited the encampment on Day 4 and Day 18 on Tuesday of this week, a mini-city had emerged. Rules of conduct are posted along the walls of the park. There is a media center, a volunteer booth, food line, barrels of drinking water, a compost pile, rows of books and a tobacco-rolling station. They even have their own newspaper, the Occupied Wall Street Journal. Every evening at 7 p.m. there is a General Assembly meeting where the faithful gather to air their grievances, plan for the days ahead, and coalesce some of the more substantive ideas that have percolated throughout the long days of demonstration, learning and discovery.

In the morning I caught up with Julian, who had casually greeted me on Day 4 with a warm and comfortable smile. Upon hearing of the protest, Julian had purchased a one-way ticket from Oregon to attend the occupation. He couldn’t say how long he would be there, only that he planned to stick it out as long as possible. This time around, Julian had the look of someone who had spent the better part of two and a half weeks battling sleeplessness and, at times, punishing weather. He was grittier and weary, though he claimed to have finally snagged a decent night’s rest.

“I would say this has far exceeded my expectations” he said, a hand-rolled cigarette tucked behind one ear and a scraggly beard adorning his tired face. “The growth of the movement speaks to the level of despair in this country and desire for change,” he said, as he greeted another volunteer who clapped him on the back and hung close for our conversation. When I asked whether he had booked that return ticket yet, his warm smile returned as he said, “I decided to keep the next six months to a year totally clear.” Politely, he then excused himself and settled in behind the volunteer table. Julian was all in.

I spent the next couple of hours weaving my way between citizen journalists, musicians, poets, activists, union workers and teachers. Another familiar face from the first week was Gio Andollo, an artist and musician from Harlem who has spent “some part of the day, every day and usually nights” at the protest since it began. He too is committed to occupying Wall Street for “as long as it takes,” and thinks the protestors have “done a really good job of diffusing potentially violent situations.” Gio, like so many of those involved in the Occupy Wall Street protest, is disappointed with the media coverage but shrugs it off. “What we’re trying to accomplish here doesn’t lend itself to media-friendly sound bites,” he says. But unlike others who cry foul at the blatantly misdirected coverage of the protest, Gio is somewhat sanguine. “It’s just a matter of time before even politicians start paying attention.”

Ironically, across the plaza a group began to gather around two men who clearly stood out from the crowd. Lo and behold, politicians had finally found their way to Zuccotti Park to engage the activists in person. City Council Members Daniel Halloran (R-Queens) and Ydanis Rodriguez (D-Manhattan) took center stage for a while to participate in the ongoing dialogue with Wall Street occupiers. Halloran, a self-proclaimed Libertarian Republican, told those around him that he supported their “constitutional right” to gather in protest, but the only way out of America’s economic mess was to “elect better people” to office and “get out and fucking vote.” He touched on hot button issues like diminishing the influence of the Federal Reserve and putting “teeth back into anti-trust regulations,” while Rodriguez, no stranger to controversy and an early supporter of Occupy Wall Street, said, “Wall Street should contribute more,” instead of the city having to “cut agencies and education.”

Despite advocating for things over which neither councilman has control, they caused a stir by at least engaging in the conversation. But their presence only highlights the lack of support and involvement from the elected federal representatives who have stayed as far from the protest as humanly possible. But then again, as Gio pointed out, it’s just a matter of time.

The “Occupy” demonstrations sprouting up around the nation illustrate the strange and uneasy predicament we face. On one side, we see a group of disenfranchised Americans taking to the streets to raise awareness of an increasingly inequitable economic system by exercising their First Amendment right to gather peaceably and protest their grievances. On the other side of the spectrum are charlatans like Glenn Beck, who is warning his ever-dwindling flock of minions to stock up on food and guns because young people have decided to mobilize against the government—pretty fucking hilarious coming from a false-wannabe-prophet who organized his own march in D.C. against the very same government.

Here’s the funny thing. The smallest step back from the fray only serves to highlight our similarities rather than our differences. Like diminutive points on an impressionist painting, there is room in America for every color, from the muted tones of conservatism to the most colorful hue of progressivism. Independent of one another they inevitably clash, but when blended together on the artist’s canvas the true portrait of America is revealed—but only from a distance. In Zuccotti Park, Anonymous may have just emerged as one of the great impressionist masters of our time, portraying America at its finest and capturing the single greatest expression of democracy to occur in my lifetime.

Don't Believe the Hype

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I, for one, could use a break from all the bullshit the government is trying to pass off on us. It’s toying with the American psyche and causing mass confusion from top to bottom. Every person, every corporation and every layer of government is living off the fat of the stimulus package and acting as though everything is OK.

Americans clearly believe that things are looking up, as consumer spending rocketed back for the month of August. Despite near-double-digit unemployment, factories running at fractional capacity, historic foreclosure rates and an expensive double-down bet in Afghanistan, the American consumer peeked out of the hole and didn’t see its shadow.

Congratulations America, the recession is over! Why do we think it’s over? Because the Fed said so. How clever. Look what our government can do when it pumps $800 billion of our children’s dollars into the economy in just a few short months—instant confidence. Don’t get me wrong, bully for the retail sector, but in the meantime, local, state and federal government are sneaking up behind us with black masks on and revolvers at our backs.

Take, for example, Nassau County, which now taxes energy consumption in our homes, gives us tickets for rolling right on red and fills in budget gaps with federal stimulus money. County Executive Tom Suozzi claims he can now magically hold the line on taxes even though budgeting to increase spending (amazing) while waiting on revenue-generating items that require approval from the (incompetent) New York State Legislature. Here’s the worst part:  Most of us are going to buy into this and probably put this guy back in office in November.

Not only did Suozzi raise our taxes an egregious 19 percent at the start of his term, but he stepped into the largest sales tax receipts in Nassau County history. In short, the two biggest reasons for revenue growth during the past eight years were from the same source: the taxpayer. Even though he campaigns on having reduced waste and abuse, he spends far more than the Gulotta administration did in 2001, and has taken on so much debt that it can no longer be serviced. During the good years, when he was flush with and drunk on our tax dollars, he blew it all.

Giving Suozzi this money was like giving your pension to your degenerate uncle and sending him to Vegas. He put it all on black but it came up red and now we’re fucked.

Instead of paying down debt, he took on more. Instead of addressing the broken tax certiorari process, he let it ride and made law firms rich on our backs. His answer to everything is to point the finger at Albany, which is like blaming the stupid kid in class for making you dumber. Albany’s answer to the crisis: tax our fishing permits, soda, bottled water, cell phones, bridges, tunnels, stores, gas, smokes; whatever they can get their grubby hands on. Now that state and local government have exhausted the taxpayers’ stash, they look to get a fix from the federal government and inject stimulus money into their collapsing municipal veins.

Unfortunately, Congress is a little strung out itself from arguing over a $900 billion healthcare bill that does everything but address the real issues with the healthcare system. A bill that screws doctors, small business owners and patients who already have health coverage in order to protect pharmaceutical companies against generic drug manufacturers and keep private insurance companies busy processing paperwork. Maybe they should have a death panel that euthanizes every Senator that passes this piece of garbage.

Hopefully the healthcare bill will fund treatment for our addiction to stimulus money because it’s dulling our senses and making us immune to some outrageous happenings in government. When $800 billion in bailout money and $900 billion on bad healthcare seem like no big deal, you know we have lost touch with reality. When local government starts taxing the energy we use in our homes, the fish we pull from the sea, and water without a peep from the taxpayer, we have slipped into a coma.

And if we believe that this recession is over because the Fed said so, just sign the DNR form now.