Apr 102013
 

Breitbart
Wynton Hall

Those wondering why the Department of Justice has refused to go after Jon Corzine for the vaporization of $1.6 billion in MF Global client funds need look no further than the documents uncovered by the Government Accountability Institute that reveal that the now-defunct MF Global was a client of Attorney General Eric Holder and Assistant Attorney General Lanny Breuer’s former law firm, Covington & Burling.

There’s more.

Records also reveal that MF Global’s trustee for the Chapter 11 bankruptcy retained as its general bankruptcy counsel Morrison & Foerester–the very law firm from which Associate Attorney General Tony West came to DOJ.

And more.

As Government Accountability Institute President Peter Schweizer explains in the Washington Times Thursday, the trustee overseeing MF Global’s bankruptcy is former FBI Director Louis Freeh. At Holder’s Senate confirmation hearing Freeh served as a character witness for Holder and revealed that Holder had previously worked for Freeh. “As general counsel,” Freeh said, “I could have engaged any lawyer in America to represent our bank. I chose Eric.”

Until now, the conventional wisdom for why Holder wouldn’t throw the book at Corzine was that Corzine is an Obama campaign bundler. Indeed, as Breitbart News reported, four of the top officials at the Department of Justice–Eric Holder, Thomas Perrelli, Karol Mason, and Tony West–were also big money bundlers for Obama.

But the newly understood crony connections reveal conflicts of interest that extend well beyond mere political support for a common candidate–they go to a tangle of prior business dealings that further underscore the need for a special prosecutor in the Corzine case.

At least 65 members of Congress have already signed a letter to Attorney General Eric Holder requesting that he appoint a special prosecutor to investigate MF Global’s collapse and the loss of $1.6 billion in customer money. What’s more, even progressives have begun to wonder whether Holder’s Covington & Burling connection explains why the Department of Justice has not charged, prosecuted, or jailed a single Wall Street executive after the biggest financial collapse in American history.

As Richard Eskow of the Huffington Post recently wrote:

More and more Washington insiders are asking a question that was considered off-limits in the nation’s capital just a few months ago: Who, exactly, is Attorney General Eric Holder representing? As scandal after scandal erupts on Wall Street, involving everything from global lending manipulation to cocaine and prostitution, more and more people are worrying about Holder’s seeming inaction — or worse — in the face of mounting evidence.

This isn’t going away.

Both the left and the right are onto Holder’s Wall Street head fake. With the revelation of the new crony connections, the time for Eric Holder to appoint a special prosecutor in the Corzine/MF Global case is now. Continue reading »

Apr 062013
 

AZCentral
WASHINGTON — President Barack Obama will release a budget next week that proposes significant cuts to Medicare and Social Security and fewer tax increases than in the past, a conciliatory approach that he hopes will persuade Republicans to sign on to a grand bargain that would curb government borrowing and replace deep spending cuts that took effect March 1.

Obama will break with the tradition of providing a sweeping vision of his ideal spending priorities, untethered from political realities. Instead, the document will incorporate the compromise offer Obama made to House Speaker John Boehner, R-Ohio, last December in the discussions over the “fiscal cliff.” They included $1.8 trillion in deficit reduction through spending cuts and tax increases.

“It’s not our ideal policy. It’s a compromise that we’re willing to do to get a bigger deal,” a senior White House official said Friday. “We want to make clear that it’s something that we’re willing to do. To not put it in the budget would be a conversation disconnected with reality.”

The senior official added that including the offer was not a hard call. Failing to do so, the official said, would have provoked howls from Republicans that “you moved the goal posts.”

Boehner, in a statement on Friday, accused Obama of holding entitlement cuts “hostage” in an effort to win support for more tax hikes, despite warnings from congressional Republicans not to do so.

“That’s no way to lead and move the country forward,” Boehner said. He also criticized the budget proposal because it does not balance, although according to White House estimates it would significantly reduce the deficit as a percentage of the economy over the next decade.

In addition to Republican opposition, the president also is likely to face immediate heat from some Democrats and liberal supporters over his proposed cuts to entitlement programs.

Obama proposes, for instance, to change the cost-of-living calculation for Social Security in a way that will reduce benefits for most beneficiaries, a key Republican request that he had earlier embraced only as part of a compromise.

Many Democrats say they are opposed to any Social Security cuts and are likely to be furious that such cuts are now being proposed as official administration policy.

“While this is not the president’s ideal deficit- reduction plan, and there are particular proposals in this plan like the cost-of-living change that were key Republican requests and not the president’s preferred approach,” a senior administration official said, “this is a compromise proposal built on common ground, and the president felt it was important to make it clear that the offer still stands.”

The full budget will be released Wednesday, but officials gave a top-line overview to reporters on Friday and have previously released details of the offer to Boehner.

Overall, the budget request reflects Obama’s stark shift in strategy over the past month as he has adopted a far more congenial posture toward the opposition. He has begun a charm offensive, reaching out to rank-and-file House and Senate Republicans, dining and speaking privately with them in hopes that they will take seriously his offer to overhaul entitlement programs in exchange for increasing tax revenue.

Obama is set to have dinner with a group of Republicans on Wednesday night, just hours after his budget is released.

Obama’s aides have not been overly optimistic about the prospects for a deal. But they now argue that a strategy of private outreach coupled with public events offers the best path forward for progress not only on the deficit but also on other issues, including immigration and gun control.

Although the White House is portraying the budget proposal as a compromise, many Republicans are likely to say that it is simply rehashing an offer previously made by the president and rejected because it raises taxes.

They are also likely to focus on the fact that, unlike the Republican budget that passed the House last month, Obama’s budget does not balance within 10years.

The GOP has made the failure to balance the budget a key talking point in recent weeks.

Obama’s budget for the fiscal year starting Oct.1 would fund several new priorities, including the creation of a new program offering preschool to all 4-year-olds from low- and moderate-income backgrounds and a significant new investment in brain research.

Officials propose an increase in tobacco taxes to pay for the early-childhood education initiative and would also seek to generate revenue by limiting how much wealthy individuals can accrue in their tax-retirement accounts.

Such accounts would be capped at $3million in 2013 dollars — which officials say is enough to finance a $205,000-a-year income.

He would also seek to scrap a loophole in the law that lets people collect both unemployment insurance and disability payments — so-called double-dipping.

The budget request comes on top of a deal struck at the start of the year to raise taxes on the wealthy by more than $600billion over a decade — mainly by returning to Clinton-era rates for households earning over $450,000 annually.

Through that pact and earlier agreements, Congress and Obama have agreed to reduce the annual budget deficit — how much more the government spends than it collects — by $2.5 trillion over the next decade. If left in place, the deep spending cuts that took effect March1, known as sequestration, would reduce the deficit by an additional $1.2 trillion over the same period. That would be just about enough to keep deficits from rising and to stabilize the debt, as measured as a percentage of the overall economy.

Obama’s budget proposal, however, would eliminate sequestration and replace it with a variety of other deficit-reduction measures, together worth $1.8 trillion, according to White House estimates. The deficit, which is projected this year to be equal to 5.5 percent of the size of the economy, would shrink to 1.7 percent of the economy by 2023.

By comparison, the House Republican budget — which would curtail spending on dozens of programs for the poor, repeal Obama’s health-care law and partially privatize Medicare for people now younger than 55 — aims to eliminate the deficit by 2023. A more liberal plan passed by Senate Democrats would make the deficit 2.2 percent of the size of the economy by that point.

The budget is more conservative than Obama’s earlier proposals, which called for $1.6 trillion in new taxes and fewer cuts to health and domestic spending programs. Obama is seeking to raise $580billion in tax revenue by limiting deductions for the wealthy and closing loopholes for certain industries like oil and gas.

Those changes are in addition to the increased tobacco taxes and more limited retirement accounts for the wealthy that are meant to pay for new spending.

The budget proposal slices $200billion from already tight defense and domestic budgets. It would cut $400billion from Medicare and other health programs by negotiating better prescription-drug prices and asking wealthy seniors to pay more, among other policies.

It would also generate $200billion in savings by scaling back farm subsidies and federal retiree programs, among other proposals.

The proposal to change the formula to calculate Social Security payments, also originally part of the offer to Boehner, would generate $130billion in savings and $100billion in revenue, a result of the impact of the formula change on other government programs.

But it is the change in Social Security payments to most recipients that is likely to generate the greatest outcry from the Obama administration’s traditional allies.

“Millions of working people, seniors, disabled veterans, those who have lost a loved one in combat, and women will be extremely disappointed if President Obama caves into the long-standing Republican effort to cut Social Security,” Sen. Bernard Sanders, I-Vt., who caucuses with Democrats, said earlier this week, after reports surfaced that Obama might include the change in his budget.

“In 2008, candidate Barack Obama told the American people that he would not cut Social Security. Having him go back on his word will only add to the rampant political cynicism that our country is experiencing today.”

Obama is submitting his budget two months late, after aides scrambled to deal with the end-of-year fiscal cliff and then the March1 deadline for sequestration.

Obama signed into law late last month a measure that funds the government through the end of the fiscal year in September — locking the sequester cuts into effect for the time being.

Two upcoming debates will provide opportunities for lawmakers and the White House to revisit those cuts and debate Obama’s budget offer. This summer, Congress will once again be forced to raise the federal debt ceiling or risk a default on the national debt. Republicans in February decided not to mount a fight over the debt ceiling, as they had in 2011, and it is not yet clear whether they will oppose an increase this time. In addition, Congress and the White House will have to agree to a new budget plan at the end of September.

Although it is conciliatory, the White House argued that Obama’s budget should not be seen as a list of options that Republicans can choose from.

“This isn’t about political horse-trading; it’s about reducing the deficit in a balanced way that economists say is best for the economy and job creation,” the senior administration official said. “That’s why the president’s offer — which will be reflected in his budget — isn’t a menu of options for them to choose from. It’s a cohesive package that reflects the kind of compromise we should be able to reach.” Continue reading »

Apr 052013
 

Global Research

BRICS Summit draws clear red lines on Syria, Iran

worldeconomy

The BRICS just became impossible to ignore.  At the close of the Fifth annual BRICS Summit in Durban, South Africa last week, there was little question that this group of five fast-growing economies was underwriting an overhaul of the global economic and political order.

The eThekwini Declaration issued at summit’s end was couched in non-confrontational language, but it was manifestly clear that western hegemony and unipolarity were being targeted at this meeting.

The BRICS hit some major western sore spots by announcing the formation of a $50 billion jointly-funded development bank to rival the IMF and World Bank. Deals were signed to increase inter-BRICS trade in their own currencies, further eroding the US dollar’s status as the world’s reserve currency.

A series of unmistakable challenges were dealt to old world leaders: reform your institutions and economies – or we’ll do it ourselves.

Intent on filling a leadership void in global economic and financial affairs, the BRICS also began to draw some firm political lines in the sand.

For starters, the summit was focused on development in Africa – a resource-rich continent where competing economic interests have drawn increasingly polarized geopolitical battle lines in the past few years. The BRICS were invited to the African table via their newest member state, South Africa, and have used this opportunity to fully back the African Union (AU).

The AU has been Africa’s attempt to integrate and unify the continent economically - via the establishment of a single currency and development fund that could bypass the very punishing IMF – and militarily – via the establishment of security/defense organizations and joint military forces, among other things.

AU success would necessarily mean less old-style western imperialism in the region, reducing exploitative foreign economic activities and excluding foreign forces like the US military’s African Command (AFRICOM) from engaging in the African military theater.

At the heart of the Summit’s agenda lies the BRICS’ determination to anchor any emerging global order in “multilateralism” – whether by demanding permanent seats within the UN Security Council, forging alternative economic constructs that will shift the balance of power their way, or proactively influencing outcomes in global conflict zones.

Syria and Iran 

The Durban summit therefore was not going to ignore the two most prominent issues on UN Security Council’s docket – Syria and Iran.

Last week, the BRICS collectively rejected any further militarization of these problems, advocated political solutions negotiated through diplomatic initiatives, expressed concern over unilateral sanctions and warned against infringement on the “territorial integrity and sovereignty” of these nations.

The eThekwini Declaration says about Iran:

“We believe there is no alternative to a negotiated solution to the Iranian nuclear issue. We recognize Iran’s right to peaceful uses of nuclear energy consistent with its international obligations, and support resolution of the issues involved through political and diplomatic means and dialogue.”

And on Syria, the BRICS fully backed the Geneva principles as the framework for resolving the two-year conflict:

“We believe that the Joint Communiqué of the Geneva Action Group provides a basis for resolution of the Syrian crisis and reaffirm our opposition to any further militarization of the conflict. A Syrian-led political process leading to a transition can be achieved only through broad national dialogue that meets the legitimate aspirations of all sections of Syrian society and respect for Syrian independence, territorial integrity and sovereignty as expressed by the Geneva Joint Communiqué and appropriate UNSC resolutions.”

The BRICS positions on Iran and Syria cannot, however, be viewed solely within the parameters of the summit’s declaration. For starters, the statement is nothing new – the BRICS have been advocating these points in some form or another since they issued their first foreign policy communiqué in November 2011.

To understand the depth and breadth of commitment behind these Mideast stances, one needs to look beyond the sanitized, diplomat-speak of the summit environment. India, Brazil and South Africa, for instance, don’t offer up much commentary on Syria and Iran – they leave that to their UNSC permanent-member colleagues in Russia and China, who are the BRICS’ front-men on these issues.

Earlier in March, Chinese President Xi Jinping visited Moscow on his first foreign trip as head of state, and told audiences there: “We must respect the right of each country in the world to independently choose its path of development and oppose interference in the internal affairs of other countries.”

A clear warning against aggressive western interventionism, Xi’s visit with Russia’s Vladimir Putin emphasized the importance of their “strategic partnership” in geopolitical affairs.

On Syria, in particular, Russia has taken the BRICS lead with the blessing of its fellow members – including China – so Moscow’s view of the situation is a critical one to analyze.

The Russians have recently released a concept paper on the importance of their participation in the BRICS – a view that is likely to reflect similar priorities at the highest levels of fellow member states.

BRICS drawing red lines

Putin and Xi say the one way to end the Syrian crisis is through dialogue [Xinhua]

Putin and Xi say the one way to end the Syrian crisis is through dialogue [Xinhua]

For all the BRICS, financial and economic considerations are the driving momentum behind the formalization of this strategic coalition. There is, say the Russians, “a common desire of BRICS partners to reform the obsolete international financial and economic architecture which does not take into account the increased economic power of emerging market economies and developing countries.”

But for fundamental economic shifts to take place, a simultaneous rebalancing of political power worldwide must also occur.

Moscow believes that the BRICS “can potentially become a key element of a new system of global governance primarily in the financial and economic areas. At the same time, the Russian Federation stands in favor of positioning BRICS in the world system as a new model of global relations, overarching the old dividing lines between East and West, and North and South.”

It’s a bold new world, but there’s real value in some of the old ways. For one, the BRICS are big proponents of the Rule of Law in global affairs, concepts the West often tosses around, but rarely adheres to in pursuit of its own strategic interests, i.e. interventionism, regime-change, militarization of conflict.

For the Russians, an absolute BRICS priority is “building on the commitment by the participating states to the rule of law in international relations, to progressively expand the foreign policy cooperation with BRICS partners in the interests of peace and security with due respect for sovereignty and territorial integrity of other states and non-interference in their internal affairs.”

The BRICS are backing the UN model to help achieve these basic principles. For them, the vehicle is not what is broken – the problem lies with its drivers. And in particular, the notion that regime change, sanctions and military intervention are acceptable tools in international affairs.

The BRICS, according to Moscow, can “enhance in every possible way interaction within the UN as well as to preserve and strengthen the UN Security Council’s role as a body bearing the primary responsibility for maintaining international peace and security; to prevent the use of the UN, first of all the Security Council, to cover up the course towards removing undesirable regimes and imposing unilateral solutions to conflict situations, including those based on the use of force.”

As an aside, it’s hardly a coincidence that Syrian President Bashar al-Assad sent a widely-reported letter to the BRICS during the Summit. Here, after all, was the head of state of a sovereign nation requesting the help of the newly-ascendant BRICS in protecting the territorial integrity of Syria by rebuffing ”blatant foreign interference” in contradiction of the ”UN Charter.”

That letter hit all the BRICS soft spots: Rule of Law in international relations, preservation of global peace and security, peaceful resolution of conflict, de-militarization … and recognition of the importance of the BRICS in the new world order.

Assad’s letter came one day after the Arab League gave Syria’s seat away to an external-based opposition coalition backed by Syrian foes – a move the Russians called “unlawful and invalid” and a hindrance to the peaceful resolution of the conflict.

It may be that BRICS intended to set an example here. Receiving this letter at the summit clearly bestows legitimacy on Assad and his claims – and it is hard to imagine that this was not an event coordinated in advance.

Moscow’s positions on the Syria issue cannot be seen out of the context of these shared BRICS principles. The Russians may have more at stake in what is going on in Syria – as others do in Iran – but these are consistent red lines in what the BRICS hope to achieve globally.

And they are willing to bet on it too. Part of the wager is that faltering western economies are so far gone on their current trajectories, that only “time” is required for these global shifts to materialize.

In any regard, shortly after the Summit concluded Russia vowed to prevent any measure in the UN Security Council to give Syria’s seat to the opposition.

The potential for chaos looms large though as a new political order emerges, and as a collective the BRICS will not be shy about pushing their agendas hard – a task made easier by the considerable clout they now share.

On his flight back from Durban to Moscow last Thursday, Putin ordered surprise large-scale military maneuvers in the Black Sea, which borders Syrian-foe Turkey – a move most observers took as a warning for foreign interventionists in Syria.

It is unlikely that BRICS nations would go to such lengths to draw red lines and not defend those positions. How this would transpire in the cases of Syria or Iran is uncertain – it is unlikely we are going to see a BRICS army fighting battles anytime soon. On the other hand, these strategic relationships are likely to give way to coordinated military positions and some special forces planning for exactly these kinds of scenarios.

This is not hard to fathom. BRIC was just an acronym created by Goldman Sachs to describe some fast-growing emerging economies a few years ago. Today, they are engaged in bilateral military exercises, funding banks, building institutions, and remapping global priorities for the 21st century Continue reading »

Jan 302013
 

PressTV

American taxpayers are expected to lose USD 27 billion from the 2008 financial bailout.
American taxpayers are expected to lose USD 27 billion from the 2008 financial bailout, as a report reveals further losses attributed to the US Treasury Department.

US taxpayers can expect to lose even more than the estimated USD 22 billion made in the fall last year, due to increased losses for the Treasury Department on sales of shares in bailed-out companies, according to a report released on Wednesday by the special inspector general for the Troubled Asset Relief Program (TARP).

The report said taxpayers could lose USD 5.5 billion specifically on Ally Financial – formerly called GMAC under a partnership with General Motors – in losses based on unsafe mortgages given right before the financial crisis. Ally owes USD 14.6 billion of the USD 17.2 billion in assistance it received.

The US government would also need to sell all General Motors shares it holds at USD 71.86 per share, more than double the current price of USD 28. GM still owes USD 21.6 billion of the USD 49.5 billion bailout it received.

“Taxpayers saved GMAC, and they should not be put in the position of needing to save the company again,” said Special Inspector General Christy Romero, adding that both Ally and General Motors owe more than half of the USD 67.3 billion still owed to taxpayers by companies that were bailed out during the financial crisis.

The government watchdog went on to reveal fraud related to TARP during investigations that subsequently led to criminal charges against 119 people, including 82 senior company executives.

This comes as Romero accused the Treasury Department for providing “excessive” pay for executives tied to the bailed-out corporations rescued from the financial crisis including General Motors, Ally Financial and AIG – the largest bailout recipient at USD 182 billion.

After the 2008 financial crisis, Congress authorized USD 700 billion for the bailout of some of America’s largest companies. About USD 413 billion was eventually issued.

Continue reading »

Jan 302013
 

The Fed is privately owned. Its shareholders are private banks

Global Research
Ellen Brown

Who Owns The Federal Reserve?

“Some people think that the Federal Reserve Banks are United States Government institutions. They are private monopolies which prey upon the people of these United States for the benefit of themselves and their foreign customers; foreign and domestic speculators and swindlers; and rich and predatory money lenders.”

– The Honorable Louis McFadden, Chairman of the House Banking and Currency Committee in the 1930s

The Federal Reserve (or Fed) has assumed sweeping new powers in the last year. In an unprecedented move in March 2008, the New York Fed advanced the funds for JPMorgan Chase Bank to buy investment bank Bear Stearns for pennies on the dollar. The deal was particularly controversial because Jamie Dimon, CEO of JPMorgan, sits on the board of the New York Fed and participated in the secret weekend negotiations.1 In September 2008, the Federal Reserve did something even more unprecedented, when it bought the world’s largest insurance company. The Fed announced on September 16 that it was giving an $85 billion loan to American International Group (AIG) for a nearly 80% stake in the mega-insurer. The Associated Press called it a “government takeover,” but this was no ordinary nationalization. Unlike the U.S. Treasury, which took over Fannie Mae and Freddie Mac the week before, the Fed is not a government-owned agency. Also unprecedented was the way the deal was funded. The Associated Press reported:

“The Treasury Department, for the first time in its history, said it would begin selling bonds for the Federal Reserve in an effort to help the central bank deal with its unprecedented borrowing needs.”2

This is extraordinary. Why is the Treasury issuing U.S. government bonds (or debt) to fund the Fed, which is itself supposedly “the lender of last resort” created to fund the banks and the federal government? Yahoo Finance reported on September 17:

“The Treasury is setting up a temporary financing program at the Fed’s request. The program will auction Treasury bills to raise cash for the Fed’s use. The initiative aims to help the Fed manage its balance sheet following its efforts to enhance its liquidity facilities over the previous few quarters.”

Normally, the Fed swaps green pieces of paper called Federal Reserve Notes for pink pieces of paper called U.S. bonds (the federal government’s I.O.U.s), in order to provide Congress with the dollars it cannot raise through taxes. Now, it seems, the government is issuing bonds, not for its own use, but for the use of the Fed! Perhaps the plan is to swap them with the banks’ dodgy derivatives collateral directly, without actually putting them up for sale to outside buyers. According to Wikipedia (which translates Fedspeak into somewhat clearer terms than the Fed’s own website):

“The Term Securities Lending Facility is a 28-day facility that will offer 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. . . . The resource allows dealers to switch debt that is less liquid for U.S. government securities that are easily tradable.”

“To switch debt that is less liquid for U.S. government securities that are easily tradable” means that the government gets the banks’ toxic derivative debt, and the banks get the government’s triple-A securities. Unlike the risky derivative debt, federal securities are considered “risk-free” for purposes of determining capital requirements, allowing the banks to improve their capital position so they can make new loans. (See E. Brown, “Bailout Bedlam,” webofdebt.com/articles, October 2, 2008.)

In its latest power play, on October 3, 2008, the Fed acquired the ability to pay interest to its member banks on the reserves the banks maintain at the Fed. Reuters reported on October 3:

“The U.S. Federal Reserve gained a key tactical tool from the $700 billion financial rescue package signed into law on Friday that will help it channel funds into parched credit markets. Tucked into the 451-page bill is a provision that lets the Fed pay interest on the reserves banks are required to hold at the central bank.”3

If the Fed’s money comes ultimately from the taxpayers, that means we the taxpayers are paying interest to the banks on the banks’ own reserves – reserves maintained for their own private profit. These increasingly controversial encroachments on the public purse warrant a closer look at the central banking scheme itself. Who owns the Federal Reserve, who actually controls it, where does it get its money, and whose interests is it serving?

Not Private and Not for Profit?

The Fed’s website insists that it is not a private corporation, is not operated for profit, and is not funded by Congress. But is that true? The Federal Reserve was set up in 1913 as a “lender of last resort” to backstop bank runs, following a particularly bad bank panic in 1907. The Fed’s mandate was then and continues to be to keep the private banking system intact; and that means keeping intact the system’s most valuable asset, a monopoly on creating the national money supply. Except for coins, every dollar in circulation is now created privately as a debt to the Federal Reserve or the banking system it heads.4 The Fed’s website attempts to gloss over its role as chief defender and protector of this private banking club, but let’s take a closer look. The website states:

* “The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation’s central banking system, are organized much like private corporations – possibly leading to some confusion about “ownership.” For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.” Continue reading »

Jan 242013
 

Bloomberg
Nick Summers
A Wells Fargo branch on San Francisco's Market Street

More than $114 billion exited the biggest U.S. banks this month, and nobody’s quite sure why.

The Federal Reserve releases data on the assets and liabilities of commercial banks every Friday. The most current figures, covering the first full week of 2013, show the largest one-week withdrawals since the Sept. 11, 2001, attacks. Even when seasonally adjusted, the level drops to $52.8 billion—still the third-highest amount on record, and one for which bank experts and analysts were reluctant to give a definitive explanation.

The most obvious culprit is the expiration of the Transaction Account Guarantee program, the extraordinary federal effort to shore up the country’s non-gigantic banks during the 2008 financial crisis. Big banks were considered “too big to fail,” while smaller ones were vulnerable to runs. The TAG program backstopped their deposit bases by temporarily offering unlimited insurance on money kept in non-interest-bearing accounts. That guarantee ended on Dec. 31, so a decrease in deposits would be expected first thing in January.

But hold on: The Fed data show $114 billion leaving the 25 biggest banks—about 2 percent of their deposit base. Only $26.9 billion left all the others, equivalent to 0.9 percent of their deposit base. Experts had predicted that the end of TAG would hurt the nation’s small banks because the big ones are still considered too big to fail. “I think [customers] are going to go back to the mega banks,” the head of a regional bank in Bethesda, Md., told The Washington Post in December. “They’ve been assured by the government that mega banks are too big to fail. It’s a horrible, bad, poorly-thought-out situation.” Small banks fearfully lobbied the Senate to extend TAG, with analysts telling the New York Times that they expected $200 million to $300 million—yes, with an m—to move from affected accounts into money market funds or elsewhere.

So if the missing $114 billion is not the result of the TAG program expiration—or at least not all related to TAG—what’s going on? Paul Miller, a bank analyst with FBR Capital Markets, cautions against reading too much into the Fed’s weekly data. “It’s a noisy database,” he says. Among large U.S. banks, there have been movements of greater than $50 billion (not seasonally adjusted) during 107 different weeks since 2000. It’s not uncommon to see 11-figure swings—that is, tens of billions of dollars—from positive to negative, or vice-versa, one week to the next.

Noise can increase near the start of a year. “The first quarter is always a wacky quarter,” Miller says. And January 2013 has seen an incredible amount of change. First, the fiscal cliff drama had companies shifting dividends and had bank clients guessing what their tax liabilities would be, which might explain the $60.4 billion pumped into the largest banks during the week ending Dec. 26. (Seasonally adjusted, it was the sixth-highest level on record.) Second, the payroll tax just went up, sticking most wage earners with paychecks that are 2 percent smaller.

Third, ordinary investors may be ready to move out of federally guaranteed accounts and into investments. Stocks did very well in 2012. As Bloomberg Businessweek’s Roben Farzad wrote on Jan. 16, equity mutual funds saw their second-highest inflows on record in the first week of the year. Economists are worrying that market exuberance is getting too high, with one measure of risk aversion at a three-decade low.

“If deposits are really trending down—and at the end of the month, we’ll be smarter than we are now—if that’s the case, it can tell us a few things,” says Dan Geller, executive vice president of Market Rates Insight. “And one thing that it could tell us is that the law of elasticity is finally catching up with deposits.” In other words, contrary to what economic theory predicts, deposits have been piling up at banks ever since the crisis, even though they offer pitiful yields. Geller says that may finally be ending—though like Miller, he says not to put too much stock in just one burst of Fed data.

“One week is just a very thin slice,” he says. Still, $114 billion is a big figure, and it’s one to keep an eye on in order to understand where the economy is headed in 2013. Continue reading »

Jan 242013
 

Bloomberg
Roxana Tiron
James Rowley

The U.S. House voted to temporarily suspend the nation’s borrowing limit, removing the debt ceiling for now as a tool for seeking deeper spending cuts.

The measure, passed 285-144, lifts the government’s $16.4 trillion borrowing limit until May 19. It goes to the Senate, where Majority Leader Harry Reid said lawmakers will pass the bill unchanged and send it to President Barack Obama.

Three-Month Suspension of U.S. Debt Ceiling Passed by House

Three-Month Suspension of U.S. Debt Ceiling Passed by House

Senate Majority Leader Sen. Harry Reid on Capitol Hill.

“The premise here is pretty simple; it says that there should be no long-term increase in the debt limit until there’s a long-term plan to deal with the fiscal crisis that faces our country,” House Speaker John Boehner, an Ohio Republican, said during floor debate. “This is the first step in an effort to bring real fiscal responsibility to Washington.”

The revised strategy eliminates the risk that House Republicans would be blamed for a default in the short term. Republicans plan to focus on other fiscal deadlines and say they aren’t giving up their fight for cuts to federal programs.

Stocks rose, with the Standard & Poor’s 500 Index (SPX) surging to its highest level since 2007. The S&P 500 gained 0.15 percent to 1,494.81 at 4:35 p.m. in New York. It rose 4.8 percent in January through today for the best start to a year since 1997. The Dow Jones Industrial Average (INDU) rose 67.12 points, or 0.49 percent, to 13,779.33.

Two Deadlines

Republicans plan to use two other approaching deadlines — the March 1 start of automatic spending cuts and the need to pass a bill by the end of March to fund the government — to extract spending reductions from Obama and congressional Democrats.

The measure passed today, H.R. 325, would allow the nation’s borrowing authority to automatically rise May 19 to accommodate the amount the U.S. Treasury borrowed during the three months that the limit is suspended.

“The president believes that we need to, as a country, do the responsible thing and without drama or delay pay our bills,” White House press secretary Jay Carney said after the debt bill passed the House. “Ideally we would extend or raise the debt ceiling for a long period of time.”

Carney said the vote “represents a fundamental change” in the House Republicans’ strategy. Continue reading »

Jan 122013
 
Wall Street Journal
Louise Radnofsky
Americans die younger and have more illnesses and accidents on average than people in other high-income countries—even wealthier, insured, college-educated Americans, a report said Wednesday.

The study by the federally sponsored National Research Council and Institute of Medicine found the U.S. near the bottom of 17 affluent countries for life expectancy, with high rates of obesity and diabetes, heart disease, chronic lung disease and arthritis, as well as infant mortality, injuries, homicides, teen pregnancy, drug deaths and sexually transmitted diseases.

“The [U.S.] health disadvantage is pervasive—it affects all age groups up to age 75 and is observed for multiple diseases, biological and behavioral risk factors, and injuries,” said the report’s authors, who are public-health and medicine academics recruited by the government panels.

The shorter life expectancy for Americans largely was attributed to high mortality for men under age 50, from car crashes, accidents and violence. But the report also said U.S. women’s gains in life expectancy had been lagging behind other well-off countries.

The authors offered a range of possible explanations for Americans’ worse health and mortality, including social inequality. They also described criticisms including limited availability of contraception for teenagers, community designs that discourage physical activity such as walking, air pollution and access to firearms, as well as individual behaviors such as high calorie consumption.
The U.S. health-care system wasn’t spared criticism, with authors describing it as fragmented, lacking sufficient primary-care physicians and posing financial barriers to millions of Americans who lack insurance or are unable to afford out-of-pocket medical costs.

But the chairman of the panel of authors, Steven Woolf, a professor of family medicine at Virginia Commonwealth University, said the report showed that health outcomes were determined “by much more than health care.”

“Our health as Americans is only partly aided by having a very good health-care system,” he said. “Much of our health disadvantage comes from factors outside of the clinical system and outside of what doctors and hospitals can do.”

The Obama administration has aimed to improve Americans’ health by expanding insurance coverage through the 2010 Affordable Care Act, while Republicans have pushed for giving the private sector a greater role in managing health care through changes to such programs as Medicare.

Public health has received relatively little attention from lawmakers, despite campaigns by high-profile figures such as first lady Michelle Obama on childhood obesity and New York City Mayor Michael Bloomberg on smoking, gun control and the sale of high-calorie beverages.

“The political environment on health is so wrapped up right now around implementation of health reform that we need to have the space to have this larger conversation and for people to understand that having health insurance is necessary but not sufficient to close this gap,” said Jeff Levi, head of the Trust for America’s Health, a public health advocacy group. He wasn’t involved in the study.

The new report noted that average life expectancy for American men, at 75.6 years, was the lowest among the 17 countries and almost four years shorter than for Switzerland, the best-performing nation.

American women’s average life expectancy, 80.8 years, was second-lowest among the countries and five years shorter than Japan’s, which had the highest expectancy.
The report’s authors were particularly critical of the availability of guns, writing: “One behavior that probably explains the excess lethality of violence and unintentional injuries in the United States is the widespread possession of firearms and the common practice of storing them [often unlocked] at home.”

The authors noted that Americans who lived past age 75 had higher survival rates compared with similar countries, and Americans overall had better rates of surviving cancer and strokes. They also said the U.S. better controls high blood pressure, cholesterol, smoking rates and use of alcohol than many other nations.

The report didn’t directly consider U.S. health in the context of spending on care, but noted that America’s low outcomes were striking given that U.S. per capita health spending exceeds that of other countries.

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