Here are a few reasons why President Obama is not viewed
as an effective leader:

First, his failure
to make good on his campaign promise to “change Washington.” Moderates
and independents thought it meant overcoming
the partisan bickering and petty gamesmanship in Washington; those on
the left hoped it meant a return to liberalism.

In either case, Obama didn’t or couldn’t bring it off
and people are disappointed.

Second is
the halting recovery. Everyone
has a family member or friend that is out of work. Despite some encouraging
signs, there are still 5.2
million Americans unemployed for longer than 27 weeks.

While this is down from 6.7 million in April 2010, there
were only 1.2 million long term
unemployed in January 2002.

Third,
the corrosive impact of the battle with the Republican party: Obama was fought every step of the way by a unified
opposition forged on the night night
of his inauguration.  

We need to remember what Obama was up against. Republicans say that Obama had a 60 seat filibuster-proof majority in the Senate
for almost 2 years. Not true.  By the
time Franken was sworn in and Kennedy got sick, passed away and the Dems ultimately lost his seat
to the GOP, Obama had about 7 months
of a super majority, (depending on whether you think Kennedy was
available to vote while he was sick). The filibuster has stopped much of the
Obama economic program.

Of all the Senate filibusters in the last 90 years,
almost 20% have been used by Republicans against Obama.

Fourth, “Government-Run” Healthcare: The problem with the Affordable Care Act is not that
the opposition has hung the tag “Obamacare” on it, that tag has finally been
embraced by the President as well as its detractors.

The real problem is that despite the fact that it is a
privately operated/publicly funded system, it is perceived as bringing socialism’s nose under our tent
of freedoms. Obama has been unable to change this perception.

Most of the healthcare bill takes effect in 2014 and has had limited
effect upon the economy.

Fifth,
Obama’s spending spree: The
average person is deathly afraid of the national deficit. The truth is that the
deficit is both large, growing  and needs to be contained. Obama is tagged with making “Government”
much too large by growing federal spending. This is a myth. As a percentage of
total federal spending, discretionary spending, that is the portion Obama
controls, was lower in 2011 than in
any year in US history. (http://www.fas.org/sgp/crs/misc/RL34424.…)

The deficit is due to the two unfunded wars, the
Economic Meltdown and imploding tax revenues due in part to the Bush tax cuts,
and the recession.

Obama needs to show how he will grow jobs AND deal with the deficit in a way that is understandable by the average voter.

Why You Should Vote for Obama:

At the
Republican convention this week, Republicans have continually refused to
discuss the past. George W. Bush’s record is off limits.

They say
that Mitt Romney, as a Republican businessman/CEO is what we need to get the
country back on track. He can do better.

They want
us to ignore that George W. Bush was also a Republican businessman. Bush won
election saying he would be a CEO as President. They want you to ignore that Bush deployed exactly the same domestic and international policies now put forward by Romney. We know how that worked out.

 

The country can’t afford another Republican
government steering the ship of state back on to those rocks.

And there
are two other reasons to vote Obama in November, even if you feel Obama doesn’t measure up to your best hopes.

First: Three Supreme Court Justices turn 80 in the next 4 years. The
next president will appoint their replacements. This will either set the corporatist
agenda in cement, or it could fight it.

Do you really want to look back on Citizens United and
Sheldon Adelson as a high point in participatory democracy and judicial restraint?

 

Second: Based on his behavior so far, President Romney will be entirely
in the grip of the neocons with regard to foreign policy and in the grip of extreme elements of the right wing regarding social policy. He
will double down on the Bush agenda that’s brought America to the current pass. He’s
told you so.

 

An extremist social agenda. More soldiers in more Middle
East countries. More money spent on a bloated defense industry. Less tax
revenues to cover current government needs.

 

According
to the Republicans, cutting taxes makes life better for everybody. However,
since 2009, Americans have been paying
the smallest share of their income as taxes in 60 years, and yet, more people than ever are struggling.

That suggests lower taxes don’t equal general prosperity
and that honest people might want to change their minds about how great low
taxes have been for America.

What has brought
the ordinary American’s life to its current state has been 30 years of Republican ideas about government,
taxes, society, and trickle-down economics.

The facts
are in: 

Between
1980 and 2008, the median American family’s income barely budged, but their buying power fell by more than half. In 2008
dollars, family income was $44,059 in 1980 and $50,303 in 2008.

Meanwhile,
the Consumer Price Index went from 86.9 in 1980, to 215.2 in 2010. So beginning
with Ronald Reagan, the typical
American family got a pay cut of 59.63%.

In the
same period, US GDP per capita in 2010 Dollars grew from $12,180 in 1980 to $48,442 in 2011. This should be
viewed in the context that the American population in
1980 was 227.2 million, but 311.6
million in 2010.

Somebody got that money, and it wasn’t the typical
American family.

There
were 80.7 million households in the US in 1980 and 114.2 million households in the United States in 2010. In that same period, the percent of households below
the poverty level grew from 13.3% of all households in 1980 to 15.1% of all households in 2010, while according to the
arithmetic, the number of
those households grew from 10.7 million in 1980 to 17.2 million in 2010.

In other
words, beginning with Ronald Reagan, and in the 31 years in which Republicans
and their right wing allies had, at a minimum, a strong influence on America,
the economy grew, but so did poverty.

No, trickle down did not benefit the typical American
family, or poor folks either.

You would
think that any person, (including Republicans) looking honestly at
figures like those above and wanting the best for the whole country, would suspect there might be some
connection between those facts and tax policy.

But
that’s not where Mr. Romney and his party are intellectually.

He says he will cut taxes another 20%, but won’t tell us how he’ll make up the additional deficit those cuts would create.

 

Elections
matter: You know what to do and you know how to do it.

It could
still be your country, if you want it.

Call me the bus driver because today, I’m taking you to school:

Last week, Barclays was busted for manipulating Libor, that is, the London Interbank Offered Rate. Libor is
the interest rate banks charge to lend to each other. It is the globally
recognized reference rate for most banking transactions and it is used to set
rates for some $400 trillion
in global financial transactions from consumer lending to  derivatives. 

Libor is based on a daily survey of banks like
Barclays.  Those banks are known
as “reference banks”. The information they provide in that
survey sets the Libor rate, which is then used to set the rate for those nearly
$400 trillion transactions. 

So, Barclay’s rate manipulation is not some victimless
crime.  It’s almost certain that
millions if not tens of millions of individuals and companies worldwide could
have been ripped off because of this conspiracy. 

By the way, Barclay’s made money when they understated
the rate AND when they overstated it.

The importance of the global interest rate rigging
scandal goes far beyond Barclays and its $453 million fine. There are 20 global banks currently under
investigation for the same offense that caused Barclays to
settle.  Barclays and the other banks are being investigated for intentionally providing information that
they knew would result in setting a false Libor rate.  This means
that these 20 or so of the biggest banks in the world conspired to manipulate
one of the most important rates in the world.

So, What’s Wrong?

This isn’t about Libor – this is about Lie-More

It is
clear that banks as presently constituted and managed, cannot be trusted to
perform any publicly important function if it is against the personal economic
interests of their management. Today’s banks are steeped in a culture that is
the result of profit-seeking behavior taken to its logical limits, where the
only questions asked by senior staff are not what is their duty or their
responsibility, but how much can we
get away with? It is about scoring the highest total compensation at
whatever the cost.

Consider
this: In a recent survey of 500 senior banking executives in the United States
and the UK;

• 
26 % of respondents said they
had observed or had firsthand knowledge of wrongdoing in the workplace

• 
24 % said they believed
financial services professionals may need to engage in unethical or illegal
conduct to be successful

• 
16 % of respondents said they
would commit insider trading if they could get away with it

• 
30 % said their compensation
plans created pressure to compromise ethical standards or violate the law

This survey was conducted by the
law firm Labaton Sucharow. Jordan Thomas, partner and chair of their
whistleblower practice, stated: “When
misconduct is common and accepted by financial services professionals, the
integrity of our entire financial system is at risk.”

The current culture and behavior of bankers is incompatible with the survival of a
sophisticated market economy. Trust is not an optional extra in
banking, it is essential.

When you read the survey above, you have to conclude
that bankers simply cannot be trusted in the current system where the pressure
to make the most profit possible out of the banking license at the expense of
clients and/or competitors is so prevalent.

Banks should not be allowed to play around with our
money solely to create profits for management in good times, while in bad
times, as we have seen over and over again, create losses that have to be
underwritten by the taxpayers.

As Eduardo Porter said in the NYT, bigger markets allow bigger frauds. Bigger
companies, with more complex balance sheets, have more places to hide them. And
banks, when they get big enough that no government will let them fail, have the
biggest incentive of all.

A 20-year-old study by the economists Paul Romer and George Akerloff
pointed out that the most lucrative strategy for executives at too-big-to-fail
banks would be to loot them to pay themselves vast rewards — knowing full well
that the government would save them from bankruptcy.

What will Work?

An important driver of the risks that a bank will take
is the bank’s senior management’s risk tolerance, which is based on how it will affect their
compensation. One change made since the downturn is to have executives take
more of their compensation in the stock of their bank and hold it for longer
periods of time. This won’t work:

Dick
Fuld, CEO of Lehman Brothers held several hundred million dollars of Lehman
stock, but was that enough to rein in Lehman’s risk taking? Clearly, no.

In addition, as the Wrongologist has
argued, equity investors’ goals of “stock price performance now”
arguably flies in the face of our broader economic need for banking safety and
soundness.

We also
know that fixed income investors are risk-averse. For them, upside on their
investment is limited, since the most they receive back at maturity of the
investment is 100 cents on the dollar, plus interest. Thus they are laser-focused on avoiding risks that will cause
losses, because they don’t get any more than that 100 cents if the bets win.

An idea outlined by Sallie Krawcheck in the June issue of the Harvard Business Review, uses a
combination of the equity and fixed income instruments of the institution to
compensate the deal makers.

Here is
how it could work: If a bank is funded with $1 in debt for every $1 in equity
(a very under-leveraged position for a bank), executive compensation would
mirror that; if the bonus component of an executive’s compensation is $2
million, then he/she would be paid in $1 million in debt and $1 million in
equity. The executive would maintain a healthy risk appetite, giving some good
amount of his focus to increasing the value of his $1 million of stock.

If the
capital structure of the bank shifted to, say, $40 in debt for every $1 in
equity (similar to the equity allocated to derivatives trading), then the same
executive’s $2 million would be paid $1.95 million in fixed income instruments
and $50,000 in equity. As the bank’s capital structure becomes riskier, the
executive would likely become much more risk averse, focusing more on
maintaining the value of the $1.95 million in bonds, rather than increasing the
value of the $50,000. This provides a natural hedge.

The value
of this compensation system is not that it will immediately make bank CEOs
behave differently (though it should), but, as it spreads down through the deal
making ranks, it will impact the risk tolerance of the executives actually
managing businesses, the trading desks and the trading positions themselves.

The
entire organization will shift naturally from one of looking to take on more
risk to one of looking to reduce risk as financial leverage increases. In doing
so, the interests of the bond holders, deposit holders and the public at large
will be more aligned with that of the management team.

So
bankers, if you want to gamble, be our guest. But do so on your own time and on
your own dime. We’re going to let you continue to exercise your significant
skills and (generally) good judgment, but in a way that doesn’t threaten our
savings, jobs, families and economy.

Part of
the answer must be a true separation of the trading businesses of today’s
investment banking from the lending/service culture of old-fashioned commercial
banking. Make the traders buy the
equity in these new Merchant Banks from their Bank Holding Companies with the
bonuses they have already received.

From here
on out you’ll have to work within a new financial system, let’s call it Limited
Purpose Banking that makes you stick to your legitimate purposes and not have
500+ subsidiaries like JP Morgan Chase to help move assets around with little
transparency. This would include your
newly spun off derivatives businesses. 

All banks
will be subject to the same regulation and regulator, regardless of their
particular line of business, with the regulators having the ability and
jurisdiction to reach across borders if it is a US bank. A single federal
regulator will verify, disclose, and supervise the custody and independent
rating of all securities held by all financial institutions.

This will
require some government agencies to be merged and new budget money to be
allocated to the job of increased oversight, much like we did with Homeland Security.

CPA
firms: No more treating zombie banking assets as alive and well. You must mark
all assets to market every quarter.

 

We must seize the initiative and force Congress, the regulators and
the auditors to take charge of this asylum.

The crooks and liars have had their turn.

What’s
Wrong Today:

President Obama made a surprise trip to
Kabul on Tuesday to sign a Strategic
Partnership Agreement (SPA) between the United States and Afghanistan
in a midnight ceremony meant to signify the beginning of the end of a war that
has lasted for more than a decade. Here he is in a helicopter with Ryan Crocker
on the way to meet Hamid Karzai:

The timing of the
trip, administration officials said, was dictated by the desire of both
presidents to sign the agreement before a NATO summit meeting in Chicago later
this month. But it also came just four days before two big campaign rallies that
serve as the symbolic kickoff of Mr. Obama’s re-election bid.

 

“The reason the Afghans have a new tomorrow
is because of you,” Mr. Obama said to several hundred troops assembled in a
cavernous hangar, against a backdrop of American flags and several armored vehicles.

 

The SPA is an executive order, not a treaty, since the President did
not take it to Congress. On the Afghan side, it also has the look and feel of an
executive order since it was not approved by the Afghanistan parliament.
Although the White House assures us that it has the force of law, it clearly
falls short of being a binding treaty.

So What’s Wrong?

1.  
How is it possible
that we can keep troops in Afghanistan for another 12 years without the agreement
of the American people?

Today,
there are about 88,000 US troops in Afghanistan. That will come down to 69,000
by September, and then most of those will leave by the end of 2013. The
document pledges that the US will have
no permanent bases in Afghanistan, but the issue won’t even come up
again for discussion for about a decade. Will Congress authorize this idea? Will
there be any discussion of this decision in the Congress?

2.  
Where will we find
the funding for Afghanistan’s domestic military to the tune of $4 Billion/year?

Well, we
know that Afghanistan cannot afford the enormous army being created for it, so
it will go on being supported by ‘strategic rent’ from outside powers or it
will collapse.

    3.  
How will this be
successful considering that our current strategy in Afghanistan is wobbly at best.
As a reminder, it consists of:

          a. Continuing
the counter-insurgency strategy, (COIN) which means we root out the Taliban while winning the hearts
and minds of the Afghans.

There is little reason to believe that COIN
is succeeding. See the Wrongologist’s prior posts, here,
here,
and
here.

The Afghanis’ hearts and minds have been
un-won by the toxic combo of night raids, peeing on corpses, burning Qur’ans,
etc., etc.

  b.
Training a capable new Afghanistan
National Army (ANA).

The ANA, now 187,000 strong, has an 86%
illiteracy rate. It is disproportionately Tajik (Dari Persian-speaking Sunnis are
not respected by the majority Pashtun) and has little or no buy-in from
Qandahar and Helmand provinces (Taliban strongholds).

Only one ANA military unit is assessed as
able to fight independently, (out of nearly 100). It is over-equipped, under-trained
and lacking in initiative and esprit de corps. That this army could defeat the
Taliban when the US and NATO depart is not at all a sure thing.

 c. Using
drone strikes to hit al-Qaeda and Taliban leaders in Pakistan.

We know
that the drone strikes have created a strong backlash in Pakistan. When the US
air force inadvertently hit 24 Pakistani troops in December, the Pakistani
parliament stopped NATO supply trucks from using the Pakistan route from
Karachi to the Khyber pass, marooning
thousands of tons of military equipment intended for the Afghanistan
National Army.

The
Pakistani Parliament is recommending against letting the US ship military goods
through Pakistan, and against allowing further drone strikes.

d.
Finding a way to replace Hamid Karzai
with someone else in 2012 who will be less corrupt but still compliant.

As Andrew
Cordesman said on May 1 in a Center
for Strategic and International Studies article:

“Every day seems to
widen the gap between the goals the United States is seeking to achieve in
Afghanistan and its ability to achieve them. Even apparent progress, like the
Strategic Framework Agreement between the United States and Afghanistan, seems
more a warning on the inability to define specific goals, milestones, and
resources—coupled with growing restraints on U.S. military action—than an
accomplishment.”

Cordesman
goes on to talk about the Taliban’s strategy:

“They [Taliban]
don’t need to initiate attacks on ISAF and U.S. forces; they only need to wait
and let them shrink. They can recover their “momentum” at the political level
by minimizing direct clashes with U.S. and ISAF forces, building up their
capabilities in their sanctuaries in Pakistan, and focusing on increasing their
influence in Afghanistan through intimidation and terrorism, attacks on Afghan
officers and officials….As in Vietnam, the insurgents can lose every major
tactical engagement and still win control in some Pashtun areas once U.S. and
ISAF forces are gone”.

The Wrongologist recommends Cordesman’s article; it is certainly worth a close read. He believes that our
present strategy will almost certainly fail to secure the south and the east of
Afghanistan.
He suggests we need to concentrate U.S., ISAF, and Afghan government resources
on the areas already largely under Afghan government control. He argues that instead of “clear, build,
and hold,” strategy, we need to “retain, secure, and support” the areas we
currently control.

Afghanistan is the war we should have won, but we
blew it ten years ago, and there are no do-over’s. While the President is drawing
the war down, he is not getting us out. It is not clear what the Pentagon’s
strategy is. What plan will we follow to secure a positive outcome?

Asking the nation to spend 12 more years fighting a
rear guard action needs to be explained in terms that the American people can
understand and accept.

That was not
a mission accomplished by the President’s speech to the nation on
Tuesday night.

What’s Wrong Today:

Republican leaders in Congress seem to be reneging on the Sequester agreement they reached with the White House last summer.  “Sequester” is budget-speak for across-the-board cuts. 

The original August 2011 deal that resolved the debt ceiling impasse called for a $1 trillion limit on discretionary spending for fiscal 2013. House conservatives now want deeper cuts. House GOP leaders are offering a compromise that would include some cuts, but not enough for its Tea Party members, while Democrats say they will reject anything that breaks the original deal.

Last week, Speaker of the House John Boehner (R-OH) signaled during an interview with Fox Business that he was open to reneging on the budget deal the GOP crafted with Democrats last year during the debacle over raising the debt ceiling. Though the parties agreed as part of that deal to a spending level for the 2013 budget, Boehner is being pushed by the more conservative members of his party to cut even deeper. And that pressure has paid off, as both Boehner and House Majority Leader Eric Cantor (R-OH) are ready to propose cuts below the level specified in the debt ceiling deal: House Republican aides said on Tuesday that House Speaker John Boehner and Majority Leader Eric Cantor were pressing for a $19 billion reduction of discretionary spending caps in this year’s Republican budget plan.

So, What’s Wrong?

Tighten your seat belts folks; it’s going to be a very rough ride. We’re hurtling towards another government shutdown fight, in which the House GOP leadership will be trying to mollify its Tea Party wing while trying to get a few Democrats to support modest additional cuts.

The fight will not be about the size of the cuts, it will be about when is a deal a deal? And when can either party trust the other once a compromise is finally achieved?

If the GOP moves to re-litigate the budget cuts, that action will set a precedent that future Presidents and Congresses will remember and take into account when a protracted partisan fight forces them to strike deals in order to govern. Sen. McCain and others have been talking since last November about walking away from the agreed defense cuts that are a part of the sequester.

Republicans will justify breaking the deal by arguing that the original compromise only set a cap on spending, or, an upper limit, meaning there’s nothing preventing spending from being cut further. While Democrats and the White House will argue that even Mitch McConnell himself recently acknowledged that what was actually agreed upon were “discretionary spending levels.”

Senate Majority Leader Harry Reid (D-NV) said:

“I’m really disappointed that they’re considering…violating the budget agreement that is now the law of this country. This was designed to avoid another government shutdown or a threat of a shutdown…We had a deal last August on the budget numbers, and we expect them to live with that deal…”

The end result of this standoff could be yet another government shutdown, as the government’s current spending authority expires on September 30.

Why is the GOP risking so much for this fight? Because President Obama is doing better with the good news on job numbers, the recent stock market run up, and the continuing sideshow that is the debate on limiting insurance for contraception.  

Now, John of Orange and Eric the Thin are thinking they could be staring at life in 2013 from the deep political weeds.

This will be the defining election year fight on Capitol Hill — one that will test Democrats’ will to break the GOP’s anti-tax absolutism, which is a skirmish in the broader fight between the parties over the future of the social safety net.

The GOP made the sequester deal understanding the consequences. They agreed to the consequences and they probably thought that when the time was right, they could walk away from it. Despite making careers out of enforcing rules that can never be broken, the GOP now finds they can be flexible.  

An agreement was reached. It must be honored. To do otherwise is WRONG!

What’s Wrong Today:

Corporatocracy is not
as much word as it is a mind set. We work for the best corporations, (actually
we say that we are “with” our firms) and we get salary, stock,
bonuses and insulation.  What Insulation
you ask?

Directors’ and Officers’ insurance. We
are protected from paying a personal price for all but our most egregious acts.
We need all this protection because there is much second-guessing about the efforts
we make to maximize shareholder value. 

We have many enemies
and all are out to get us. A lot of them turn out to be our shareholders. Also,
there are those idiot regulators looking over our shoulders with their
Sarbanes-Oxley, Gramm-Leach-Briley, Dodd-Frank, not to mention those pesky EPA
regulations.

In order to keep us financially
whole if we fall into the clutches of these lawyers, we get Directors’ and
Officers’ insurance coverage and other indemnifications detailed in our
contracts by our companies for both our acts and failures to act. This covers all
of the legal and other costs of defense if we come under the microscope of the
civil, regulatory, or in some cases, criminal processes.

So What’s Wrong?

CEO’s and other “C” level executives at the big firms can do most
anything they want, assuming they are senior enough, almost without penalty.

Penalties levied on
corporate miscreants, and the legal bills they rack up defending themselves, almost
never come out of their own pockets, since insurance policies and company
reserves wind up paying the bills.

This means that the shareholders wind up paying.

Let’s also lose the pretense that Boards of Directors are somehow in
control of their CEO’s. Large company boards are a collection of buddies, stooges,
retired generals, senile executives now put out to pasture, designated females
and minority members. They walk through monthly power lunches, attend board
committee meetings, then pocket stock and options in the chump change category and
in most cases, rubber stamp executive actions. They make a living by providing similar
service on multiple Boards, which makes them completely beholden to CEO favor.

Board management is more oxymoronic than responsible journalism.

When you think about it, our entire social fabric survives (barely) on
pretense covered up by magical thinking:

Recently, I watched CNBC’s circus of savants drool
over a pastured out former celebrity CEO whose credential seems to be having
presided over the collapse of one of our most well known industrial firms. She
delivered the predictable snipe at ‘uncertainty over government regulation’ as
an all purpose excuse for corporate non performance.

You
simply cannot make this shit up and produce anything more ridiculous or
grotesque than reality: Epic Corporate Fail followed by a career as a CNBC
guest “analyst”.

And what if you run a
company so far into the ground that the federal government has to take it over?
Not to worry: the taxpayers may even pay your legal bills. Consider Fannie Mae
and Freddie Mac:

Since the two
companies collapsed into conservatorship in 2008, taxpayers have advanced about
$73 million to pay the legal bills of former executives who are fighting fraud
suits and investigations dating back to 2005.

No surprise, really.
A heads-we-win, tails-the-taxpayers(or shareholders)-lose model has a lot going for it, IF you
are one of the chosen executives at the top of these institutions.

A Radical Idea:

The “Do the Crime and do the Time” applies to low level
criminals or middle management, but it does not apply to F500 Execs or Wall
Street’s top guys, or to bank fraud.  Evidently,
in 2005 through 2007, Citibank just took the risk, defrauded billions and
estimated the fine would be minimal, which it was.

People at or near the top at Citibank decided to take the risk and
the country be damned. Shouldn’t these Fraudsters go to jail?

Wouldn’t it be edifying if the sentences for bank fraud were aligned
with the federal sentencing standard that applies when you are caught with marijuana?
As I understand it, there is a yardstick related to the value of marijuana you
are holding: Five years mandatory in federal prison for 100 plants worth
$100,000 or ten years in federal prison for 1000 plants worth $1 Million.

So, if Citibank stole $1 billion, it would mean 10,000 years in jail
for one or hopefully, more executives.

We need to stop this nonsense of immunity from prosecution of Wall
Street.

As Congress continues to underfund the budgets of the SEC, CFTC, and
the Dodd Frank law, trying to assure that there will not be enough
investigators to go after the bad guys, it is apparent we have a systemic
problem, namely Congress and specifically the Republicans.

Bob Dylan was right:

“Steal a dollar and they’ll call you a
criminal, steal a million and they’ll make you a king.”

 

What’s
Wrong Today:

Few of you saw it,
but our Washington ignorati have launched part of their plan to hamstring Dodd-Frank
and the Commodities and Futures Trading Commission (CFTC). See this from Reuters:

“Republicans and
Democrats in the U.S. Congress on Monday agreed to a measure that would set the
U.S. Commodity Futures Trading Commission’s budget for fiscal 2012 at $205
million, $103 million less than what was requested by the Obama
administration.”

But, this year the
CFTC had a budget of around $170 million. So, funding in 2012 will be up by
about 20%. Sounds ok, right? 

So,
What’s Wrong?

The
CFTC has a bigger job to do next year and you want and need them to do it well. Have you heard about MF Global (MFG),
John Corzine’s company? No? They just went bankrupt after making huge bets on
European sovereign debt. MFG placed
$6.3 billion in bad bets using derivatives on European sovereign debt, thereby
becoming the first Wall Street firm to fail since the 2010 Dodd-Frank
regulatory overhaul.

Guess who might be
the US regulator responsible for the $600 trillion over-the-counter derivatives
market? Wait for it…the CFTC!

So, great timing
Congress.  It’s not very comforting to hear that the CFTC is already “several
months behind in implementing [OTC derivatives] rules…required under last
year’s Dodd-Frank law.”

The FT reminds us what a shock MFG’s downfall
is:

“It
is a mantra of the futures industry: no customer lost a dime because regulators
failed.”

Well, the CFTC may
be getting set up for failure.

We have
learned that MF
Global’s customers haven’t just lost
dimes,
but $600 million due to MFG’s
failure to observe the
broker’s cardinal rule: keep the house’s money separate from the customers’.
Investors now want assurances about all the other brokers. They want the CFTC
to, among other things, help audit
120 U.S. futures firms
to make sure that they are not acting like MFG. The CFTC is short one man because their
chairman, Gary Gensler, had to recuse himself from the
MFG deliberations due to his close ties to Corzine. Gensler worked at Goldman
Sachs Group Inc. when Corzine was co-chairman, and was a Senate aide when Corzine
served as a U.S. senator from New Jersey.

Meanwhile, consider
this:

• U.S. banks exposure to European
  sovereign debt is very high–the best guess is an absurdly
  wide range of $46.4 billion to $767.5 billion, and

• Chances are that a huge part of
  their exposure is in the form of derivatives

Scared
Yet?

The costs of carrying
out the CFTC’s mission have changed dramatically since the Dodd-Frank legislation
was passed last year and we surely want to avoid more MF Global-style failures. 

Politico quoted Dennis Kelleher, CEO of Better
Markets: “Not funding the CFTC is like taking the police off the streets
in a high-crime area, which is what Wall Street is.” “The only way to
prevent…[the Wall Street houses] from…[losing huge amounts of $$] again is to
make sure that the CFTC has the funds to do its job.”

And
a little history: Way
back in 2010, during the debate on finance reform, Republicans successfully defeated
a measure that would have caused the banks to contribute to a fund that would
cover the cost of additional oversight (like that required in the derivatives
market) by regulators. Now they (and some Democrats) are whining because it
will cost too much to enforce. Gee, why can’t we have it both ways?

I
don’t know if an additional $35 million above last year’s CFTC budget is
sufficient to keep these Wall Street firms playing by the rules. They seem to
always walk the fine edge of the letter of the law in a world where they can
only win and where we can win or lose. Given that, I don’t see what is wrong
with fully funding the regulators for the next few years. We have seen what
happens when we do not.

Once
again, the legislative process lurches forward, fueled by a toxic brew of
ideology and financial influence peddling by the very entities that obviously need
to be on a short regulatory leash.

And once
again, it is terribly WRONG.

What’s Wrong Today

We are quickly approaching the point of no return on increasing the debt limit. And it is doubtful that we will see a positive outcome from the “negotiations” between the two parties.

Some of the Washington ignorati believe that an actual negotiation is underway. Most of them think that a battle between mutually exclusive ideologies is taking place, and that the substantive difference is between those who feel that we should raise revenues in addition to lowering expenditures, and those who think we should simply lower expenses.

 Wrong!

There is no negotiation. And this is not what the battle is about. 

The Tea party faction of the Republicans believes that the US government is too big and that the best way to make it smaller is to limit its ability to borrow. The easiest way to limit the Government’s ability to borrow is by forcing it to miss some payments. 

Who would lend to a deadbeat?

Since Speaker Boehner doesn’t actually control House Republicans, he will be 50-75 Republican votes short of passing a bill that increases the debt ceiling that isn’t based on a compromise with Democrats. Obviously, he would get some Democrats voting with him, but not enough to pass a bill. If he does compromise with Dems, he will be more than 75 votes short of what he needs to pass a bill. Our divided government is really in the House of Representatives and more directly, within the Republican Party in the House.

So who benefits from financial chaos?    Two groups:

1. Republicans! I previously reported on Eric Cantor’s shorting of US Treasuries, so we know that he benefits personally. Politically, the idea is to create a fiscal crisis that Obama and Democrats can’t solve without Republican help. The gamble is that the electorate will blame the ongoing economic crisis (made substantially worse by a default) on Obama in 2012 and that the presidency and the Senate will then swing to Republican control. Then they can proceed with their agenda to dismantle the New Deal social safety net while making the world safe for the wealthiest 1% of Americans.
2. Too Big to Fail Money Market firms. The firms that dominate the financial markets take as an article of faith, that inflation will happen and thus borrowing costs will rise. This drives their profits up every time. Moreover, they like tumultuous markets. Since (i) rates haven’t actually risen and (ii) commodity prices have retreated since the Spring of this year, their trading departments have seen short term profits decline, so they also benefit from rising rates, a falling dollar and a weakened President.

An old Ponzi schemer in Boston that I used to know said all the time: “If you can’t raise the bridge, lower the river.” This meant to him, think outside the box when you have a problem that you can’t solve. The Republicans and the Banks are thinking outside the box alright, and it is so wrong.