NOT a ‘REAL’ BANK
http://gawker.com/5840953/the-private-bank-of-denny-ray-hardin-wasnt-a-real-bank

After reading some books about banking, Denny Ray Hardin set up a website, created 2,000 fake promissory notes, and opened up “the Private Bank of Denny Ray Hardin” (not necessarily in that order) from his home in Kansas City. How entrepreneurial! And illegal. On his website—sorry, the Private Bank’s website—Hardin claimed that the notes, which he made on his home computer, were bonded and authorized by the U.S. Treasury Department. From September 2008 to September 2009 he sold more than $100 million of these things, reports the Kansas City Star.

In a March 2010 profile by the Kansas City alt-weekly The Pitch, Hardin comes off as a tragic and complicated character who has some altruistic motives but is also driven by extremist “don’t tread on me” ideology. Fittingly, the article introduces him by way of a his many life troubles, which seem to have begun when he and his girlfriend were in a car accident, she lost her ability to work, and he was laid off from his construction job. “The one good thing we had was Betsy,” he told The Pitch, referring to his beloved Corvette Stingray. But then a friend set him up in a small-time marijuana deal, and Hardin was arrested. The cops confiscated the Corvette, and Hardin was sentenced to jail time plus probation. Upon his release, he experienced this horror: “The next time Hardin saw Betsy, almost a year later, she had been painted up as an ad for the D.A.R.E. program.” Seriously, that’s tragic.

Besides seeing his old hot rod being used to promote snitching on your parents, Hardin faced other troubles. His woman left him. He began smoking crack. His life essentially fell apart. Then he went to rehab and read about various subjects, including banking. He applied his knowledge and opened the Private Bank of Denny Ray Hardin, under this theory that we don’t understand:

Hardin theorizes that it’s possible to file a document that renounces one’s U.S. citizenship and instead declares what he refers to as American citizenship. By doing this, the newly declared American citizen can take possession of an account that is supposedly set up by the feds on the occasion of every person’s birth. Next, the American citizen can file a financial statement with the U.S. Secretary of State and copyright his or her name. The Americans Republic Party explains that with these three simple steps, it’s possible to become a sovereign with the right to cash checks from one’s established-at-birth account.

Hardin didn’t really charge people much of a fee to his customers, whose mortgages he paid off using his special-issued Denny Ray bonds (for more on how this works, see this LA Timesarticle). Like an official bank, he gave his customers information packets describing “all the steps he had taken, what laws he had to abide by, the ordinances that must be followed.” And, as The Pitch notes, he was just one banker in a small yet diverse niche market; the Gadsden flag-flyingAmericans Republic Party, which has supported Hardin over the years, knows of other private banks operating right here in America.

On Wednesday, Hardin was found guilty in federal court on 11 counts of creating fictitious obligations and 10 counts of mail fraud, reports the Kansas City Business Journal; he now faces at least 20 years in prison. At the time of his indictment in May 2010, he was already incarcerated in state prison on a probation violation based on a 2006 incident in which he tried to arrest the lieutenant governor of Kansas for violating the Constitution. The government did not agree with Hardin about the lieutenant governor’ behavior. Hardin and the government are rarely in agreement on the issues, it seems.

It’s amazing that people would do business with a bank named after some random guy. Then again, people do business with all kinds of banks. At least this can be said about the now-shuttered Private Bank of Denny Ray Hardin: it was probably one of the only banks in Kansas City that was helping people to avoid foreclosure instead of making foreclosure more likely.

Among those who say Hardin is their savior (from left): Denelle Ginder-Brown; her husband, James Brown; and their daughter, Michelle Elam. - Michael McClure

NEVER ASKED for the MONEY BACK
http://www.pitch.com/gyrobase/denny-hardins-weapon-against-the-us-government-his-own-private-bank/Content?oid=2197865&showFullText=true

Denny Hardin’s weapon against the U.S. government: his own private bank
by Peter Rugg  /  March 11, 2010

It started over a cherry 1977 Corvette named Betsy. “Ever since they took that car, the fight’s been on,” Denny Hardin says. He’s talking to The Pitch by phone from the Moberly Correctional Center, where he’s serving the first months of a five-year sentence for a probation violation. By “they,” he means the United States of America. Hardin didn’t plan to wage a one-man war against the government. He was once a loyal citizen; he even served in the Navy in the 1980s. By 1991, he was in his late 20s, divorced from the wife he’d met in Tokyo, and back in his hometown of Kansas City. He began dating a hairdresser named Sherry Lee, who wanted to open her own salon. They found a space and started work on it, sleeping on the floor of the shop when they didn’t have enough money to also rent an apartment. But then they were in a car accident. The insurance company paid out $20,000 for medical bills and the cost of the car. They spent $7,780 on Betsy. Hardin found the car on the lot of a Raytown Chevrolet dealer. It was in such pristine condition that it was just a thousand dollars less than the original sticker price. A ’77 Stingray is one of the most popular Corvette models ever made, the type of car that bikini-wearing models still recline against on the covers of muscle-car magazines. The rest of the money went to medical bills, but Lee couldn’t work. Her hands, which she had relied on to style hair, now shook uncontrollably. “Then I got laid off from my construction job,” Hardin remembers. “The one good thing we had was Betsy.” For the next few months, money was scarce. One day, a friend of Hardin’s from grade school asked if Hardin could help him find some weed. His friend promised that Hardin would make a couple of bucks for setting up the deal. When they got to the dealer’s house, the friend feigned shyness, telling Hardin that because the dealer didn’t know him, it was better that he stay in the car while Hardin bought the dope. Hardin went in and bought a half-pound of pot. When he came back out, police arrested him. “It turned out, that friend had been busted by the cops earlier, and he set me up because he’d made a deal with them to deliver people,” Hardin says. He served 120 days and got five years’ probation. Even worse, the cops claimed that the Stingray had been bought with drug money, so they confiscated it. The next time Hardin saw Betsy, almost a year later, she had been painted up as an ad for the D.A.R.E. program.

Lee eventually left him. He knows that she’s in Iowa somewhere, working as a paralegal, but they haven’t spoken in years. “When they took Betsy away, that just about destroyed her. Betsy was repayment for almost dying,” he says. “I promised her I’d make up for what they did, and I still keep that promise.” He didn’t start right away. Hardin spent the next few years in a crack-smoking stupor, dropping down to 87 pounds before checking himself into a hospital for rehab. As he convalesced, he read history and law books. Eventually, the man who was still three credits short of his associate’s degree at Longview Community College was offering legal advice to friends and family. Before long, he learned how to make his own bank.

The Private Bank of Denny Hardin, responsible for writing more than $160 million in bonded promissory notes to borrowers all around the country, is a two-story house on the East Side of Kansas City. Taped to the door is a notice declaring that no foreign agents are allowed to search the premises. Inside, shelf after shelf is filled with accordion folders holding the names and addresses of the people for whom Hardin, with the help of his fiancée, Melinda Harrington, has written bonds. Hardin theorizes that it’s possible to file a document that renounces one’s U.S. citizenship and instead declares what he refers to as American citizenship. By doing this, the newly declared American citizen can take possession of an account that is supposedly set up by the feds on the occasion of every person’s birth. Next, the American citizen can file a financial statement with the U.S. Secretary of State and copyright his or her name. TheAmericans Republic Party explains that with these three simple steps, it’s possible to become a sovereign with the right to cash checks from one’s established-at-birth account.

In April 2009, the Office of Inspector General at the U.S. Department of the Treasury posted a fraud alert. In 2008, Treasury agents noticed that people were sending in notes and bonds to pay their taxes. “These scams have been directed towards banks, charities, individuals, and companies which seek payment on the fraudulent securities,” the Treasury warned. In most cases, perpetrators were writing bonds with a Treasury Bureau routing number in place of a bank’s and were writing their own Social Security numbers where the checking-account numbers would normally be listed. “Fraudulent seminars are being held throughout the United States, which teach attendees how to create the aforementioned fictitious documents and how to use federal routing numbers,” the Treasury warned.

Other than the part about putting on seminars, the warning was essentially a description of Hardin’s operation. Hardin says he has never charged his clients anything more than the administrative cost of filing his notes (typically no more than $100) and has never asked for repayment on a loan. If he’s telling the truth, that’s a lot of risk for little payoff. One of Hardin’s early customers was Bob Suppenbach, who had known him when the cops took Betsy but had lost track of him. (Those were the years when Hardin was addicted to crack, Suppenbach learned.) “I ran into a mutual friend, and he told us what had happened to him.” The mutual friend then told Hardin about running into Suppenbach. “Denny came out to see us two days later and he’s been coming to the house ever since.” Suppenbach wasn’t immediately sold on Hardin’s new calling. But as a man who had his own troubles with the government, he saw the appeal. In the late 1960s, state agents removed Suppenbach and his three brothers from their mother’s care. Suppenbach says his two brothers were later molested by people who were supposed to watch out for them, and both died in the 1980s after contracting HIV. Before Hardin was busted in a drug sting, Suppenbach served four months in the U.S. Penitentiary at Leavenworth for making cable descramblers for satellite dishes. “I’m the only man in the whole damn country who’s served time in a federal prison for stealing HBO,” Suppenbach says.

He had money troubles, too. “Seems like everything I went and got involved in, for one reason or another after two or three years, got obsolete. Got into TV repair, VCR repair, then computers. Then I thought I’d try construction. I got a company set up, got all my trailers, my tools, spent thousands of dollars getting set up in construction. Then the market fell out.” Suppenbach had a $60,000 mortgage hanging over him. Then in 2006, he joined the class of plaintiffs in a multistate lawsuit against the company that supposedly held his title, Ameriquest Mortgage. The nation’s largest subprime lender settled claims of predatory lending by agreeing to pay $295 million in restitution and changing its lending practices. A year later, Suppenbach got a collection notice for the same loan from Citibank, whose parent company, Citigroup, had acquired much of Ameriquest in 2007. During last year’s bank bailout, Citigroup’s arrangement with the government ensured that about $20 billion in federal dollars would be directly invested in the company, in addition to $306 billion to help back loans and securities. “They were selling them back and forth. It didn’t matter that they defrauded me and I won in court. They got rewarded for it.”

When it comes to not knowing exactly who owns his mortgage, Suppenbach has a lot of company. In many cases, even the banks aren’t sure. (Last year, researchers at the University of Iowa found that out of 1,733 foreclosures begun in 2006, 40 percent of the foreclosing creditors showed no proof of ownership on the note or security investment in the property.) If a bank has to contest a payment’s legitimacy — for example, if payment is presented in the form of a bonded promissory note from a self-proclaimed banker — then not being able to show proof of ownership could actually help the homeowner, or at least let the homeowner delay getting kicked into the street. After Hardin’s 2009 incarceration, the Americans Republic Party Web site posted a list of other private banks. As of February, the only links were to a man named Charles Elliot in Henderson, Arkansas (who did not return The Pitch‘s calls), and J.W. Patterson, president and founder of Shadow Mountain Bank in Ash Fork, Arizona. The latter is probably the only financial institution in the country whose Web site includes links to prove it’s a real bank, along with clip art of doves carrying roses in their teeth and a teddy bear that somersaults and dances over the P.O. Box number. Patterson says the Treasury Department is just catching up. “I’ve been doing this since the ’80s,” he says.

The Private Bank of Denny Hardin is the originator of more than $160 million - in bonded promissory notes to borrowers all around the country. - Sarah Rae

Patterson says he has written bonds for thousands of people, including members of the Montana Freemen — the group that spent 81 days in a standoff with the FBI in 1996, defending land they claimed was their own, separate from the United States. (They were also known for passing counterfeit checks and money orders.) Today, the group’s most famous former member is Scott Roeder, admitted killer of Kansas abortion provider George Tiller. Patterson won’t say how many clients request his help in a given day, just that Shadow Mountain has a budget of $500 a week for ink. In Kansas City, at least one family considers Hardin an angel. In March 2009, KCTV Channel 5 aired video of a 44-year-old named Denelle Ginder-Brown, who was near tears. All around the country, people had been losing their homes. Ginder-Brown, who worked as a cashier, lived in a house on East 93rd Street near Indiana Avenue with her husband, 63-year-old James Brown, and their two children. They had lived there for 15 years and had a deal with the owner: They would make the monthly mortgage payments and eventually the house would be theirs. In 2004, the owner died and willed the house to them. They kept writing checks to Capitol Federal and never missed a payment.

But within months of the owner’s death, Capitol Federal ordered that the remaining $10,000 balance on the mortgage be paid immediately or else it would foreclose on the house. The Browns didn’t have the money. A representative from the Neighborhood Assistance Corporation of America — a group that helps families facing foreclosure — looked at the case and discovered that Capitol Federal had continued accepting payments even though it knew that the Browns’ deal wasn’t a legal sale of the property. NACA’s local director tried to work out a payment plan, but Capitol Federal refused. In a suit brought against Ginder-Brown by Capitol Federal, a judge ruled that the bank owned the property because her name was never on the title. The family was given a week to find a new place to live. Channel 5 aired the story on Monday, March 2, 2009, and the property was scheduled for auction on Monday, March 9.

On the day of the auction, Channel 5 aired a new story. This time, Denelle Ginder-Brown was smiling. Capitol Federal had relented because, as it turned out, it was only servicing a loan that was owned by Freddie Mac, which had decided to work with her on a new loan. But there was even better news. An anonymous good Samaritan had seen the Browns on the previous week’s broadcast and offered to pay the loan completely. All Ginder-Brown had to do was wait for the bank to confirm that it had received the house payment in full, and then she could see her name on the title. The moral to the story: There are good people in the world. The family’s anonymous savior was Hardin. “We got down on our knees and we prayed for God to help us because we didn’t have anything else we could do,” says Brown, who is currently on disability. “We believe God makes a way out of no way, and he sent Denny Hardin.”

At first, the Browns were skeptical of Hardin’s claims that he was a private bank. Then he gave them a packet with all the steps he had taken, what laws he had to abide by, the ordinances that must be followed. They decided their prayers had been answered. Immediately after Hardin paid their mortgage, the couple says, they received a visit from FBI agents telling them that Hardin was paying off other people’s homes with fraudulent bonds. James Brown claims that the agents asked him to inform on Hardin. But it’s hard to convince people to roll on a man sent by God to save them. The Browns believe that the status of their house is still uncertain; they claim that they’re still fighting over the initial loan disagreement. Most of their belongings are in storage, and they’re ready to move on a moment’s notice. “We’re down to the barest of essentials in here,” Brown says. “Our house is almost naked because we don’t know the final outcome. But if it hadn’t been for Denny’s help, we’d have been steamrolled right over from the start.” Since he started his bank in September 2008, Hardin says, most of the $160 million in notes that he has written have been to pay off people’s bank loans and keep them from going into foreclosure. “As far as I can tell, nobody’s lost their house who he helped,” Brown says. “He put a new roof on our house, and he saved us from being on the street, and he never asked us for a dime.”

The thing about probation-violation hearings is that they’re supposed to be simple. There are no mitigating circumstances. There are no degrees of violation. Either you broke the terms of your probation or you didn’t. Denny Hardin has a gift for making simple things complicated. At this late-summer hearing in 2009, Hardin is accused of violating a probation order restricting him from appearing in court or filing papers on behalf of anyone other than himself. The probation stems from an incident in 2006, when he camped out on the steps of the Capitol in Jefferson City and tried to arrest Lt. Gov. Peter Kinder for violating the U.S. Constitution. Hardin appears unassuming for a man who wants to bring down the federal government — a “paper terrorist,” as some agents refer to him. He is slight, with long hair and a beard, wearing blue jeans and a T-shirt that reads “Americans Republic Party” and “Don’t Tread On Me.” Along with the slogans, the shirt bears the yellow Gadsden flag — a favorite symbol among Tea Partiers — with its symbol of a coiled snake ready to strike.

The snake also appears on the chests of 30 other men and women of the Americans Republic Party who have filled the right side of the courtroom. Each one holds a black, leather-bound copy of the Constitution. The Browns are there. So is Suppenbach. Several supporters are Hardin’s bank customers. Over the course of what becomes a two-hour hearing, Hardin objects to every possible authority that the court tries to exert over him, including its authority to make him sit down. On this point, Judge Stephen Nixon concedes, and Hardin spends the trial brandishing a copy of the Constitution over his head as if it were a Bible at an exorcism. Hardin’s argument against being forced to sit down is the only victory he has today. To list each overruled objection would take more pages than a pocket Constitution. Nixon overrules with a calm that seems uncaring to the members of the Americans Republic Party and generous to the two prosecuting attorneys.

Hardin’s most minor objections involve claims that he was forced to sign documents under duress. His most sweeping denounce the legitimacy of the judge, the court, the legal systems of the state of Missouri and the United States, and the bar-admitted lawyers who have sworn allegiance to British royalty. Hardin’s followers take copious notes, recording their leader’s argument every time Nixon denies a motion. When the hearing ends, Hardin has been sentenced to five years in prison. There’s a collective gasp from Hardin’s supporters. The prosecuting attorneys and the judge are unmoved. Sentencing is always followed by a gasp. Hardin takes off his choker necklace and gives it to Harrington. “I guess now I’ll be writing that letter to the president of the United States from the Jackson County Jail,” he says, before officers escort him away in handcuffs.

In the Moberly Correctional Center, Hardin’s days are scheduled around four strict appointments. At 7:15 a.m., 11 a.m., 4 p.m. and 7 p.m., he gets a phone call from Harrington. Hardin spends time in the law library. Being incarcerated hasn’t given him second thoughts about offering his services to his fellow inmates. “My theory is that if there’s no property damage and no injured party, there’s no crime,” he tells The Pitch. “Most of the guys in here never committed a crime. It’s just the system bringing them in so it can make money off of their incarceration.” He’s certain that if he files enough motions, if he cites the right laws, he can build a chain of arguments he can follow back to the world. In Kansas City, the Americans Republic Party is confident that, any day now, Hardin will be released. “We’re all working on it and doing what we can,” James Brown says. “I think he’ll be out in a couple weeks.” Patterson, in Arizona, is also trying to help. “Probably 90 percent of the people he was helping have come to me,” Patterson says. “I’m writing a bond to try and get him out right now. Of course, he didn’t set his bank up totally right — he missed a few things, but I can help him correct it all when he gets out.” The right paperwork is crucial, Hardin says. “I have to show them I’m right. We can’t be violent. We can’t tell people to go out and get guns. We have to win with the power of our reason. We have to show them they’re wrong and we’re right.”

COUNTIES use ‘LAND BANKS’ and EMINENT DOMAIN to FIGHT FORECLOSURE FRAUD
http://www.webofdebt.com/articles/north_dakota.php
http://www.webofdebt.com/articles/occupy.php
by Ellen Brown / January 12, 2012

An electronic database called MERS has created defects in the chain of title to over half the homes in America. Counties have been cheated out of millions of dollars in recording fees, and their title records are in hopeless disarray. Meanwhile, foreclosed and abandoned homes are blighting neighborhoods. Straightening out the records and restoring the homes to occupancy is clearly in the public interest, and the burden is on local government to do it. But how? New legal developments are presenting some innovative alternatives.

John O’Brien is Register of Deeds for Southern Essex County, Massachusetts. He calls his land registry a “crime scene.” A formal forensic audit of the properties for which he is responsible found that:

• Only 16% of the mortgage assignments were valid.
• 27% of the invalid assignments were fraudulent, 35% were “robo-signed,” and 10% violated the Massachusetts Mortgage Fraud Statute.
• The identity of financial institutions that are current owners of the mortgages could be determined for only 287 out of 473 (60%).
• There were 683 missing assignments for the 287 traced mortgages, representing approximately $180,000 in lost recording fees per 1,000 mortgages whose current ownership could be traced.

At the root of the problem is that title has been recorded in the name of a private entity called Mortgage Electronic Registration Systems (MERS). MERS is a mere place holder for the true owners, a faceless, changing pool of investors owning indeterminate portions of sliced and diced, securitized properties. Their identities have been so well hidden that their claims to title are now in doubt. According to the auditor: “What this means is that . . . the institutions, including many pension funds, that purchased these mortgages don’t actually own them”.

The March of the AGs
When Massachusetts Attorney General Martha Coakley went to court in December against MERS and five major banks—Bank of America Corp., JPMorgan Chase, Wells Fargo, Citigroup, and GMAC—John O’Brien said he was thrilled. Coakley says the banks have “undermined our public land record system through the use of MERS.” Other attorneys general are also bringing lawsuits. Delaware Attorney General Beau Biden is going after MERS in a suit seeking $10,000 per violation. “Since at least the 1600s,” he says, “real property rights have been a cornerstone of our society. MERS has raised serious questions about who owns what in America.”

Biden’s lawsuit alleges that MERS violated Delaware’s Deceptive Trade Practices Act by:
·         Hiding the true mortgage owner and removing that information from the public land records.
·         Creating a systemically important, yet inherently unreliable, mortgage database that created confusion and inappropriate assignments and foreclosures of mortgages.
·         Operating MERS through its members’ employees, whom MERS confusingly appoints as its corporate officers so that they may act on MERS’ behalf.
·         Failing to ensure the proper transfer of mortgage loan documentation to the securitization trusts, which may have resulted in the failure of securitizations to own the loans upon which they claimed to foreclose.

Legally, this last defect may be even more fatal than filing in the name of MERS in establishing a break in the chain of title to securitized properties. Mortgage-backed securities are sold to investors in packages representing interests in trusts called REMICs (Real Estate Mortgage Investment Conduits). REMICs are designed as tax shelters; but to qualify for that status, they must be “static.” Mortgages can’t be transferred in and out once the closing date has occurred. The REMIC Pooling and Servicing Agreement typically states that any transfer after the closing date is invalid. Yet few, if any, properties in foreclosure seem to have been assigned to these REMICs before the closing date, in blatant disregard of legal requirements. The whole business is quite complicated, but the bottom line is that title has been clouded not only by MERS but because the trusts purporting to foreclose do not own the properties by the terms of their own documents.

Courts Are Taking Notice
The title issues are so complicated that judges themselves have been slow to catch on, but they are increasingly waking up and taking notice. In some cases, the judge is not even waiting for the borrowers to raise lack of standing as a defense. In two cases decided in New York in December, the banks lost although their motions were either unopposed or the homeowner did not show up, and in one there was actually a default. No matter, said the court; the bank simply did not have standing to foreclose. Failure to comply with the terms of the loan documents can make an even stronger case for dismissal. InHorace vs. LaSalle, Circuit Court of Russell County, Alabama, 57-CV-2008-000362.00 (March 30, 2011), the court permanently enjoined the bank (now part of Bank of America) from foreclosing on the plaintiff’s home, stating:

[T]he court is surprised to the point of astonishment that the defendant trust (LaSalle Bank National Association) did not comply with New York Law in attempting to obtain assignment of plaintiff Horace’s note and mortgage. . . .

[P]laintiff’s motion for summary judgment is granted to the extent that defendant trust . . . is permanently enjoined from foreclosing on the property . . . .

Relief for Counties: Land Banks and Eminent Domain
The legal tide is turning against MERS and the banks, giving rise to some interesting possibilities for relief at the county level. Local governments have the power of eminent domain: they can seize real or personal property if (a) they can show that doing so is in the public interest, and (b) the owner is compensated at fair market value.

The public interest part is obvious enough. In a 20-page booklet titled “Revitalizing Foreclosed Properties with Land Banks,” the U.S. Department of Housing and Urban Development (HUD) observes: “The volume of foreclosures has become a significant problem, not only to local economies, but also to the aesthetics of neighborhoods and property values therein. At the same time, middle- to low income families continue to be priced out of the housing market while suitable housing units remain vacant.” The booklet goes on to describe an alternative being pursued by some communities: “To ameliorate the negative effects of foreclosures, some communities are creating public entities — known as land banks — to return these properties to productive reuse while simultaneously addressing the need for affordable housing.”

States named as adopting land bank legislation include Michigan, Ohio, Missouri, Georgia, Indiana, Texas, Kentucky, and Maryland. HUD notes that the federal government encourages and supports these efforts. But states can still face obstacles to acquiring and restoring the properties, including a lack of funds and difficulties clearing title. Both of these obstacles might be overcome by focusing on abandoned and foreclosed properties for which the chain of title has been broken, either by MERS or by failure to transfer the promissory note according to the terms of the trust indenture. These homes could be acquired by eminent domain both free of cost and free of adverse claims to title. The county would simply need to give notice in the local newspaper of an intent to exercise its right of eminent domain. The burden of proof would then transfer to the bank or trust claiming title. If the claimant could not prove title, the county would take the property, clear title, and either work out a fair settlement with the occupants or restore the home for rent or sale.

Even if the properties are acquired without charge, however, counties might lack the funds to restore them. Additional funds could be had by establishing a public bank that serves more functions than just those of a land bank. In a series titled “A Solution to the Foreclosure Crisis,” Michael Sauvante of the National Commonwealth Group suggests that properties obtained by eminent domain can be used as part of the capital base for a chartered, publicly-owned bank, on the model of the state-owned Bank of North Dakota. The county could deposit its revenues into this bank and use its capital and deposits to generate credit, as all chartered banks are empowered to do. This credit could then be used not just to finance property redevelopment but for other county needs, again on the model of the Bank of North Dakota. For a fuller discussion of publicly-owned banks, see http://PublicBankingInstitute.org.

Sauvante adds that the use of eminent domain is often viewed negatively by homeowners. To overcome this prejudice, the county could exercise eminent domain on the mortgage contract rather than on title to the property. (The power of eminent domain applies both to real and to personal property rights.) Title would then remain with the homeowner. The county would just have a secured interest in the property, putting it in the shoes of the bank. It could then renegotiate reasonable terms with the homeowner, something banks have been either unwilling or unable to do. They have to get all the investor-owners to agree, a difficult task; and they have little incentive to negotiate when they can make more money on fees and credit default swaps on contracts that go into default.

Settling with the Investors
What about the rights of the investors who bought the securities allegedly backed by the foreclosed homes? The banks selling these collateralized debt obligations represented that they were protected with credit default swaps. The investors’ remedy is against the counterparties to those bets—or against the banks that sold them a bill of goods. Foreclosure defense attorney Neil Garfield says the investors are unlikely to recover on abandoned and foreclosed properties in any case. Banks and servicers can earn more when the homes are bulldozed—something that is happening in some counties—than from a sale or workout at a loss. Not only is more earned on credit default swaps and fees, but bulldozed homes tell no tales. Garfield maintains that fully a third of the investors’ money has gone into middleman profits rather than into real estate purchases. “With a complete loss no one asks for an accounting.”

Not only homes and neighborhoods but 400 years of property law are being destroyed by banker and investor greed. As Barry Ritholtz observes, the ability of a property owner to confidently convey his property is a bedrock of our society. Bailing out reckless financiers and refusing to hold them accountable has led to a fundamental breakdown in the role of government and the court system. This can be righted only by holding the 1% to the same set of laws as are applied to the 99%. Those laws include that a contract for the sale of real estate must be in writing signed by seller and buyer; that an assignment must bear the signatures required by local law; and that forging signatures gives rise to an actionable claim for fraud.

The neoliberal model that says banks can govern themselves has failed. It is up to county governments to restore the rule of law and repair the economic distress wrought behind the smokescreen of MERS. New tools at the county’s disposal—including eminent domain, land banks, and publicly-owned banks—can facilitate this local rebirth.

Ellen Brown is an attorney and president of the Public Banking Institute, http://PublicBankingInstitute.org. In Web of Debt, her latest of eleven books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites arehttp://WebofDebt.com and http://EllenBrown.com.

STATE PUBLIC BANKS
http://www.yesmagazine.org/new-economy/how-wisconsin-could-turn-austerity-into-prosperity-own-a-bank
http://www.yesmagazine.org/new-economy/a-choice-for-states-banks-not-budget-crises
http://www.yesmagazine.org/new-economy/the-growing-movement-for-publicly-owned-banks

NY STATE ENACTS ‘LAND BANK’ LAW
http://www.housingwire.com/2011/07/29/new-york-state-enacts-land-bank-law
New York state enacts land bank law
by Kerry Curry / July 29, 2011

New York became the latest state Friday to enact land bank legislation to deal with the burgeoning problem of vacant and blighted properties — one of the aftereffects from the nation’s foreclosure crisis. New York Gov. Andrew Cuomo signed the law Friday in what was described as a bipartisan effort. Land banks are entities that take control of problem properties and either rehabilitate the property or bulldoze it to redevelop the land. The strategy has met with success in some of the nation’s inner cities that have been ravaged by the foreclosure crisis, such as Detroit and Cleveland. Land banks have assembled parcels for green space, urban farming, side lots, community amenities, commercial development and affordable housing, among other uses.

New York’s law will allow cities and counties across the state the ability to develop land banks, which would be tasked with converting vacant, abandoned or tax-delinquent properties into productive use. The issue is of particular importance in Western New York, where the volume of abandoned housing stock is overwhelming. Center for Community Progress President Dan Kildee, who wrote a piece on land banks for HousingWire’s August magazine, worked closely with the lawmakers who crafted the bills, which are modeled on the example of Flint, Mich., a city ravaged by the downturn in the American auto industry. The Genesee County Land Bank, created there in 1999, has been the primary vehicle for redeveloping the city’s vacant housing.

Kildee, the creator of that land bank, says he believes land banking can yield similar results for New York. He told HousingWire that the Flint land bank has acquired nearly 10,000 vacant homes since its inception, demolishing more than 1,300 of those. Its projects have included redevelopment or repurposing of 2,500 properties. Kildee said the land bank has attracted more than $60 million in new investment to Flint. “Around the country, as communities face the fallout of a changing economy and the foreclosure crisis, land banking is giving local governments the chance to help re-set the real estate market and promote sound development plans for the future,” he said. Similar legislation is up for consideration in Pennsylvania and Tennessee, while Georgia legislators are debating an update of a land banking law already on the books there, according to the Center for Community Progress.

LOCAL SOLUTIONS
http://www.mainstreetmatters.us/publicbanking
http://www.mainstreetmatters.us/solvingforeclosures
A Solution to the Foreclosure Crisis / by Michael Sauvante

Summary
Not since the Great Depression have so many homes been seized in foreclosure proceedings. With no end in sight, our country and local communities are faced with the realization that neither Washington nor Wall Street is willing or able to solve the problem. National Commonwealth Group has developed a set of solutions that can be initiated at the local level independent of outside help. They begin with actions that just take some political will on the part of local county officials, which “political backbone” they might conveniently find with the help of local citizens action groups, the small business community and local newspapers, TV & radio.

We have defined a 6 step program that communities can put in motion. The first 4 steps represent largely mitigation efforts that can dramatically reduce the negative impact that foreclosures have on homeowners, their neighbors, the banks and the community as a whole. In some cases those steps will translate into stopping certain foreclosures outright. However, if a community wants to step them entirely, then steps 5 and 6 provide them with the means to do that. We have detailed those 6 steps in the following downloadable document entitled “Stopping Foreclosures: A Local Action Plan“. It is our understanding that not all states and counties in the country, due to local and state laws, would be able to apply these recommendations as is. Nonetheless, a sufficiently large enough segment of the states and their counties could follow these guidelines that they should start to have impact on a large number of communities impacted by the foreclosure problem. We are working with some experts in those states that have a different foundation for how foreclosures are administered to develop an alternate plan for them as well.

In the meantime, we recommend you read the “Stopping Foreclosures: A Local Action Plan” document first and then proceed to read the balance of this section, as it drills deeper into our recommendations contained in Steps 5 & 6. Steps 5 & 6 entail local governments, in particular counties and larger cities, using two sets of laws that will allow them to seize control of their local foreclosure problem and bring about a halt to the devastation they cause to the community and all participants. The first set of laws related to the eminent domain powers of government bodies and the second set of laws relate to banking. Here is a brief synopsis of those two solutions. It is followed by a more in-depth exploration of the whole topic, including a downloadable .pdf document that can be read offline.

Let us begin with the eminent domain powers of these entities. We recommend this solution be pursued primarily at the county level. Here’s why: Counties are the government entity most concerned with foreclosures in their jurisdiction, in that legal proceedings occur at the county court level and county sheriffs are the law enforcement agency tasked with carrying out evictions. The first step we recommend is that a county issues a moratorium on foreclosures within the county, along with ordering the sheriffs to discontinue any evictions (of homeowners facing foreclosure or those who move back in post foreclosure as currently promoted by Occupy Our Homes et al.). Counties can take such actions under their mandate to promote the public good.

Next, they can address the problem of MERS, the principal perpetrators of foreclosure actions against homeowners. MERS was established to bypass the normal title transfer process and costs, resulting in purported title holders unable to prove clear title. Few homeowners have the financial resources to fight foreclosures on this basis, but counties clearly have the financial muscle, ability and motivation to challenge MERS on title questions. If MERS (or any other purported title holder) cannot prove clear title, then it is in the interests of the county and the homeowner for the county to step in and seize the mortgage contract for the property under its eminent domain authority. (Note – as explained here, eminent domain can be used to not only seize real property, but personal property like contract rights and other intangible property, including mortgage contracts.) Post seizure (which costs the county virtually nothing), the county is in a position to work out new terms with the homeowner, allowing them to remain in the home and make mutually agreed upon payments. In the process, the county and all other local constituents avoid the negative impact a foreclosure has on the community and the homeowner gets to stay in the home.

The above solution could address about 50% of the pending foreclosures in the community, corresponding to the percentage of all mortgages held by MERS. If that happens in enough counties, the magnitude of the losses to MERS may well force a national solution to the title issue, but in the meantime, counties could use the process to begin to address their local foreclosure problem. That begs the question of what can be done about the mortgages held by legitimate titleholders, such as community banks, that did not resell their mortgages? A county could still exercise its eminent domain rights and seize those mortgage contracts to those properties as well. In those circumstances, eminent domain rules dictate that the county need only pay a “fair market” value for the mortgage, just as it does with any other normal eminent domain purchase. This would actually currently yield more income to the selling bank than it would see through a foreclosure auction, a plus for the bank.

{Download the full article that explores the eminent domain and county bank solution here: http://www.mainstreetmatters.us/docs/No-more-foreclosures.pdf}

Ending Foreclosures With Local Solutions
Wall Street abuses! Inaction in Washington! Regardless of where one points the finger, the foreclosure crisis continues to devastate the American economy. Community banks are particularly hard hit, through no fault of their own, and many have failed, seized by regulators or snatched up by larger banks seemingly immune to regulatory heavy handedness. Collapsing real estate markets have a domino effect on institutions that are dependent on healthy real estate values, in particular local governments that rely on property taxes. The problem is that the players who might have a solution to the crisis are pressured in ways that exacerbate it. For example, community banks would be penalized by the FDIC and other regulators if they tried to help homeowners by renegotiating their loan payment amounts, providing them payment holidays or simply writing down the value of the loans. The federal government would have to initiate a massive new program to cover the costs to the banks that would produce, or require regulators to radically alter their rules to allow banks to take such actions without a negative impact on their own status. Neither is politically feasible. And Wall Street banks have no motivation to step in and solve the crisis that they helped to create. But there is a way out. Local governments, primarily at the county level, can exercise certain of their legal rights, including the right of eminent domain. And they can go much further if they also make creative use of existing banking laws.

Counties and Foreclosure
Most of the legal procedures associated with foreclosures occur at the county level, including legal filings, court hearings and the too familiar process of sheriffs evicting homeowners after foreclosure. This allows counties to begin implementing a solution in three simple steps:

Step 1: Counties can declare a moratorium on foreclosures on the grounds that they are economically harmful to all residents of the county, not just individual homeowners and mortgage holders. The decline in overall property values following foreclosures impacts the revenue of the county and other government entities that depend on property tax revenues. Reducing or stopping foreclosures is clearly in the public interest and is the first step in solving the problem locally.

Step 2: The county can order its sheriffs not to evict any property owner as a result of already instituted foreclosure proceedings or other parties that have moved into foreclosed homes as part of the Occupy Our Homes movement and other similar activities. That would prevent homeowners being thrown out on the street and provide homes for those already evicted.

Step 3: The county can begin working with homeowners who are under threat of foreclosure to distinguish which homeowners have mortgages primarily with local institutions versus those that have been re-sold and currently held by MERS (Mortgage Electronic Registration Systems, Inc.) or other non-local institutions. MERS is a private mortgage registry that Fannie Mae and Freddie Mac formed along with major banks to bypass public registration of deeds and facilitate the creation of mortgage-backed securities. MERS holds about half of the mortgages in the country.

The Problem with MERS
MERS was created to simplify the bundling of large numbers of individual mortgages into other financial instruments, which resulted in the breakdown of the normal process of title transfer. One reason for that was a desire by the owners of MERS to avoid title transfer costs and thus increase their profits on securitizing those mortgages. The result is that many homeowners are paying on mortgages for which no clearly defined mortgage holder can be identified.

The majority of state attorneys general are in battles with Fannie and Freddie over their unresponsiveness to homeowners’ need to reduce their debt and the imposition of foreclosures even when proper title cannot be presented. (See “Kamala Harris, California Attorney General, To Fannie And Freddie Head: ‘Step Aside’ Over Mortgage Crisis” and “Beau Biden, Delaware Attorney General, Sues Big Banks’ Mortgage Registry”) Yet in order to perfect a foreclosure claim, a mortgage holder is supposed to have clear title to the property, giving them the right to seize the property for non-performance on the part of the mortgagee (homeowner). Where clear title cannot be evidenced, the law should be on the side of the homeowner. But courts, banks and law enforcement have often run roughshod over homeowners who, without the financial resources to fight foreclosure proceedings, are often powerless to stop the juggernaut. If the purported mortgage holder cannot prove clear title, then the law is clear that the homeowner should be able to retain possession and control of their property. Yet many homeowners have been foreclosed improperly and forced out of their homes. Some homeowners have successfully prevailed in court by demanding that the foreclosing entity prove title, which in many cases they could not. Of course, such a legal battle requires financial resources that are usually missing because the homeowner is already in financial difficulties, causing the foreclosure proceedings in the first place.

Counties, MERS & Eminent Domain
This is where counties can come to the rescue. If the financial institution (typically downstream from the originating bank and rarely a community bank) cannot demonstrate clear title, the county can invoke its power of eminent domain to resolve the issue. Eminent domain allows a government entity to seize not just physical property but intangible property such as contract rights, patents, trade secrets and copyrights, provided that doing so is in the public interest and the owner is compensated at fair market value. Counties simply need to provide adequate public notice that the property is subject to eminent domain seizure. If the lender cannot provide proof of title by the end of the notice period, the county can proceed with the seizure uncontested. Since there is no identifiable party to compensate, this procedure costs the county next to nothing. Regardless of the cloud over the title prior to the seizure, clear title is once again established afterward. We have a long history of counties re-establishing clear title, as in cases where property is seized (e.g., for failure to pay taxes) and sold in what are often called “sheriff’s sales.” The title industry considers such sales to wipe out all previous title history, and any future title searches only go back to that date. As the title cost the county essentially nothing, it can negotiate terms with the homeowner that will redefine what portion of the property the homeowner is allowed to retain and also allow the homeowner to remain in the home. That could include a temporary moratorium on any payments pending improvement on the homeowner’s financial condition. At a very minimum the county can then rent the home to the (former) homeowner. (See ““Right-to-Rent”: A Simple, Sensible Idea That Dysfunctional Washington Is More Than Happy to Let Die”)

The net result of this process is:

  • Foreclosures and their negative ripple effect on the local economy are reduced.
  • More homeowners remain in their homes, helping to preserve neighborhoods.
  • The county receives new revenues.

The Moral Argument
In addition to the economic benefits of stopping foreclosures, this process addresses the fact that the MERS system was designed to skirt legal procedures in pursuit of profit. The foreclosure crisis stands at the very center of our economic woes, and since the federal government appears incapable or unwilling to address this problem, this solution lies with local communities. The nature of free market capitalism is that you risk losing your investment. If, like the owners of MERS, you do so because you played fast and loose with the rules, then taxpayers especially should not be required to bail you out, as MERS owners might demand if their system starts to significantly unravel.

What About Legitimate Mortgages?
What can the county do when the titleholder is a financial institution, like a community bank, that normally does not re-sell its mortgages? The county can still exercise eminent domain and seize the property, paying fair market price. Actually, were the bank to be paid the current appraised value for the property, it would in most cases come out financially ahead of what it could realize from a foreclosure sale. How does the county finance the eminent domain purchase of a property at fair market value? Currently, that means borrowing the funds from other institutions and repaying them out of tax revenues and/or the revenues realized from payments by the homeowners. One could argue that the revenue from all of the properties seized (both the MERS properties and those bought for full market value) should be adequate to service the debt. But the county has another tool that allows it to go far beyond financing seized properties and into facilitating the larger credit needs of the county and its residents. That solution is called Public Banking. See the section entitled Public Banking to see what it is and how we can use the concept to get credit flowing in our communities again and to free us up from the tyranny of the Wall Street banks.

Start Now
At the very least county administrators should be petitioned to place a moratorium on local foreclosures and exercise the eminent domain seizure of those foreclosure candidate properties for which no clear titleholder can be established. That will require no new systems at the county level and will go a long ways to ending the devastation of foreclosure.

LAND BANKS
http://planphilly.com/rda-farming
http://www.thelandbank.org/aboutus.asp
http://www.mslandbank.com/aboutus.html
http://www.communityprogress.net/around-the-states-pages-5.php

WHAT is a LAND BANK?
http://www.umich.edu/~econdev/landbank/
Revitalizing Blighted Communities with Land Banks / by Jessica de Wit

A land bank is a public authority created to efficiently hold, manage and develop tax-foreclosed property.(1) Land banks act as a legal and financial mechanism to transform vacant, abandoned and tax-foreclosed property back to productive use. Generally, land banks are funded by local governments’ budgets or the management and disposition of tax-foreclosed property.(2) In addition, a land bank is a powerful locational incentive, which encourages redevelopment in older communities that generally have little available land and neighborhoods that have been blighted by an out-migration of residents and businesses.(3) While a land bank provides short-term fiscal benefits, it can also act as a tool for planning long-term community development. Successful land bank programs revitalize blighted neighborhoods and direct reinvestment back into these neighborhoods to support their long-term community vision.

Why have a land bank?
Land is one of the most important factors in local economic development today and must be managed well to improve existing land use practices, enhance livability of communities, and support local community development.(4) In recent surveys, the Brookings Institute found that on average 15% of the land in major American cities is vacant.(5) Vacant and abandoned land does not produce sufficient property tax revenue for cities, which generally is their main revenue source. This lack of funds impedes a city’s ability to sustain its operations, programs, and services. In addition, vacant and abandoned land discourages property ownership, depresses property values, attracts crime and creates health hazards.

To understand why it is important to have a land bank, it is necessary to assess the costly impact of vacant and abandoned land in communities. When there are vacant and abandoned properties in communities, neighboring property owners and the municipalities incur significant costs. The U.S. Fire Administration reports that over 12,000 vacant structure fires are reported each year in the U.S., which results in $73 million in property damage annually.(6) In addition, abandoned properties tend to attract crime. A 1993 study of 59 abandoned properties in Austin, Texas, found that 34 percent were used for illegal activities and of the 41 percent that were unsecured, 83 percent were used for illegal activities.(7) This crime drains police department resources and leaves residents feeling unsafe in their own neighborhoods.

When property owners neglect and abandon their properties, the local municipality must use its own resources to clean and maintain the properties as part of their nuisance abatement responsibilities to protect the public health, safety and welfare of its community. For example, from 1999 to 2004, St. Louis spent $15.5 million, which equates to nearly $100 per household, to demolish vacant buildings.(8) Detroit spends roughly $800,000 per year to clean vacant lots.(9) Abandoned and vacant properties drive down the surrounding property values, which lowers the property taxes that most municipalities rely on as a primary source of revenue.

Property abandonment can destabilize a neighborhood by causing an out-migration of property owners, who are worried about losing value on their properties due to surrounding vacant and abandoned land. A Temple University study suggests that, all things being equal, the presence of an abandoned house on a block reduces the value of all the other property by an average of $6,720.(10) According to Emory University Professor Frank Alexander’s research, “failure of cities to collect even 2 to 4 percent of property taxes because of delinquencies and abandonment translates into $3 billion to $6 billion in lost revenues to local governments and school districts annually.”(11) While it is difficult to quantify all of the costs associated with vacant and abandoned properties, it is clear that they place a tremendous cost burden on communities.

Land Bank Benefits
While abandoned and vacant properties depress property values, discourage property ownership, and attract criminal activities in the surrounding area, a land bank provides tools to quickly turn these tax-reverted properties back into usable parcels that reinvest in the community’s long-term vision for its neighborhoods. Land bank programs act as an economic and community development tool to revitalize blighted neighborhoods and business districts. Land banks can benefit urban schools, improve tax revenues, expand housing opportunities, remove public nuisances, assist in crime prevention and promote economic development.(12)


Source: 2004 Kirwan Institute for Study of Race & Ethnicity, Ohio State University.

By transferring vacant and abandoned properties to responsible land owners through a land bank program, local governments benefit because they avoid the significant cost burden of property maintenance, like mowing and snow removal, as part of their nuisance abatement responsibilities. In addition, local governments benefit from increased revenue because the new property owners pay taxes on the property. Also, the local schools benefit because they receive more funding when there is an increase in property owners in their school districts. Land bank programs can increase the variety of mixed-income housing offered and provide more opportunities for affordable housing. Also, land bank properties, which become owner-occupied, discourage criminal activity thereby benefiting public safety and decreasing the cost burden on the local police and fire departments. Finally, the more residents and businesses that occupy property in a neighborhood, the more services and amenities will be needed, which boosts local economic activity. Many cities, like Atlanta, GA; St. Louis, MO; Genesee County, MI; and Cleveland, OH; have established land bank programs to redevelop vacant and abandoned land as a productive use for their communities. These communities are using land banks as a tool to reuse their urban land and stimulate economic development and neighborhood revitalization.

Land Bank Challenges
While there are many benefits to establishing land banks in communities, there are also many challenges in operating and maintaining them. Several U.S. municipalities have had challenges with running their land banks. Atlanta’s land bank has a lack of sufficient acquisition funds for both Community Development Corporations (CDC) and the land bank authority (LBA).(13) In addition, they have a need for ongoing improvement coordination among community development departments of local governments, the LBA and the Tax Commissioner.(14)

Cleveland’s land bank challenges are the capitalization of projects, the CDC’s limited capacity to take and rehab land acquired from the land bank and the time consuming administrative procedures, including the legislative process and aldermanic approvals.(15) CDCs want the City to go beyond supporting primarily tax-delinquent vacant properties and take the lead on tax-delinquent properties that have existing structures and the possibility of environmental contamination.(16)

Genesee County’s land bank challenges are whether urban tax-reverted properties have enough value to be purchased, even with the latest Land Bank Fast Track legislation.(17) In addition, there are concerns whether there will be enough revenue generated by the sale of these properties to pay the costs associated with administering a Redevelopment Fast Track Authority.(18)

Case Study: Michigan’s Land Banking Enabling Legislation
To better understand how land bank programs work, it is helpful to review a case study. Following is a case study of Michigan’s Land Bank Enabling Legislation and Michigan’s Genesee County land bank program. It is important to first review a State’s particular Land Bank Enabling Legislation because these laws provide land bank programs with the legal and financial tools needed to operate and maintain a land bank. Prior to January 2004, Michigan’s tax foreclosure laws on abandoned properties were ineffective because local governments did not have the authority to effectively manage tax-reverted land and prevent blight. Now, Michigan has one of the most progressive land banking laws in the nation.(19)

In January 2004, Governor Granholm signed into law the Land Bank Fast Track Legislation, Public Act (PA) 258, to provide communities with better legal and financial tools to put vacant and abandoned properties back into productive use.(20) This law establishes a state land bank authority while also enabling the establishment of city and county land bank authorities.(21) In addition, the law permits these authorities to expedite quiet title on properties, which it possesses, and make them available at nominal prices for productive reuse in the community.(22) The quiet title process is a legal action that eliminates all liens and past claims on a property and clears the title so a new owner may purchase the property without worrying about any unresolved claims.

In conjunction with PA 258, the Governor also signed into law four other related Public Acts:

PA 259 amends the Michigan Brownfield Redevelopment Act to allow any land bank authority owned property to be defined as “blighted property”, which enables a tax increment financing board to provide assistance to a land bank authority with clearing or quieting a title, and disposing of property owned or held by a land bank authority.(23)

PA 261 creates the Property Tax Exemption Act, which exempts property, with titles held by land bank authority, from taxes and exempts property sold by a land bank authority from general property taxes for five years.(24)

PA 260 creates the Tax Reverted Clean Title Act to impose a specific tax, which would have the same rate of general property taxes for five years, on property sold by a land bank fast track authority. While one half of the revenue from this specific tax funds an authority’s title clearance and land disposition costs, the remaining half is earmarked for local and state collecting units on a pro-rata basis.(25)

PA 263 amends the General Property Tax Act to permit a foreclosing governmental unit to request a title product other than an unreliable title search to identify the owners of tax delinquent properties at the time of foreclosure and describe a reasonable process for identifying these owners and providing public notice to them.(26)

Michigan’s Genesee County Land Bank
In Michigan, Genesee County has been a leader in creating a successful land banking program. Under the Genesee County Land Bank Authority, tax foreclosed properties are held for a period of time before being returned to the market. This allows for the grouping of parcels together to provide a more attractive resale opportunity and the assessment of potential property owners to ensure that they will contribute to the long-term vision of the community.

The Genesee County Land Bank Authority has acquired title to more than 3400 land parcels, including nearly 6% in the City of Flint in the first three years of the program.(27) They have successfully transferred 130 foreclosed tenant occupied properties to non-profit housing agencies, whose goal is to stabilize neighborhoods and encourage home ownership.(28) In addition, the LBA has redeveloped a 30,000 sq. ft. mixed use building in downtown Flint, which has been empty since 1980, and they have assembled hundreds of empty lots for city development projects and local non-profit and community organization projects.(29)

Land Banks as a Smart Growth Planning Tool
While other cities’ land bank programs, like St. Louis, have been used primarily as a fiscal tool to stimulate growth in their communities, Genesee County’s land bank program has been used as a planning tool to align with their communities’ long-term redevelopment plans that provide the greatest benefit. When Michigan’s Governor Granholm signed the latest land bank legislation in 2004, she said, “Together these new laws will help local planning officials to look at an entire area or region when developing land use plans.”(30) In addition, the Governor said, “To make headway against urban sprawl, we must think regionally and use new tools.”(31) Land bank programs are one of these smart growth tools that counter sprawl and revitalize the inner core of Michigan’s cities. Based on Governor Granholm’s state-wide smart growth goals, it is imperative that Michigan communities focus on city and region-wide planning instead of just fiscal objectives when implementing land bank programs.

References and related links
1) 2005. Smart Growth Tactics. Michigan Society of Planning, January.
2) Brooks, Amy; Collins, Demetria; Eichmuller, Barbara; Tintocalis, Melissa; van Leeuwen, Simon. 2004. Harnessing Community Assets: A Detroit Land Bank Authority. Taubman College of Architecture & Urban Planning, University of Michigan, April.
3) Blakely, Edward and Bradshaw, Ted. 2002. Planning Local Economic Development. California: Sage Publications.
4) Ibid.
5) Pagano, M. & Bowman, A. 2000. Vacant Land in Cities: An Urban Resource, Survey Series. The Brookings Institute.
6) 2004. Vacant Properties and Smart Growth: Creating Opportunity from Abandonment. Funder’s Network For Smart Growth and Livable Communities, September.
7) Ibid.
8) Ibid.
9) Ibid.
10) Ibid.
11) Ibid.
12) 2004. The Multiple Benefits of Land Banking and Comprehensive Land Bank Planning for Detroit. Kirwin Institute for the Study of Race & Ethnicity, Ohio State University, April.
13) Local Initiatives Support Corporation. 2005. Atlanta Case Study: Model Practices in Tax Foreclosure and Property Disposition. Retrieved from http://www.lisc.org/resources/vacant_abandoned.shtml?Affordable+Housing.
14) Ibid.
15) Local Initiatives Support Corporation. 2005. Cleveland Case Study: Model Practices in Tax Foreclosure and Property Disposition. Retrieved from http://www.lisc.org/resources/vacant_abandoned.shtml?Affordable+Housing
16) Ibid.
17) Wyckoff, Mark. 2003. All Communities to Benefit from New Land Use Legislation. Planning & Zoning News, December.
18) Ibid.
19) 2005. Smart Growth Tactics. Michigan Society of Planning, January.
20) Brooks, Amy; Collins, Demetria; Eichmuller, Barbara; Tintocalis, Melissa; van Leeuwen, Simon. 2004. Harnessing Community Assets: A Detroit Land Bank Authority. Taubman College of Architecture & Urban Planning, University of Michigan, April.
21) Ibid.
22) Ibid.
23) 2005. Smart Growth Tactics. Michigan Society of Planning, January.
24) Brooks, Amy; Collins, Demetria; Eichmuller, Barbara; Tintocalis, Melissa; van Leeuwen, Simon. 2004. Harnessing Community Assets: A Detroit Land Bank Authority. Taubman College of Architecture & Urban Planning, University of Michigan, April.
25) Wyckoff, Mark. 2003. All Communities to Benefit from New Land Use Legislation. Planning & Zoning News, December.
26) Ibid.
27) 2005. Smart Growth Tactics. Michigan Society of Planning, January.
28) Ibid.
29) Ibid.
30) Crowell, Charlene. 2004. In Lansing, A Legislative Breakthrough. Michigan Land Use Institute. Retrieved from http://www.mlui.org/growthmanagement/fullarticle.asp?fileid=16609.
31) Ibid.


‘LAND VALUE TAX’
http://en.wikipedia.org/wiki/Land_value_tax#References
http://www.newstatesman.com/200409200008
A revolutionary who won over Victorian liberals
by Tristram Hunt / 20 September 2004

While land reform has been alive in British radical thinking since 1066, it was an American who managed to craft the first credible programme for change. Medieval critics of the “Norman Yoke”, the Diggers and Levellers of the English civil war, and the 18th-century opponents of land enclosure had all longed without success for the return of a golden age in which land would be equitably distributed according to need. But the campaigning California journalist Henry George transformed nostalgia into public policy with a tour through 1880s Britain, energising public opinion and making land reform the foundation stone of progressive politics.

Late 19th-century Britain enjoyed a wealth of radical debate. New ideas, new movements and new leaders were systematically unpicking the intellectual hegemony of mid-Victorian laissez-faire. In the town halls of Birmingham, Glasgow and London, the coming creed of municipal socialism was displaying the practical benefits of an activist council; the works of Marx and Engels were being translated and distributed; even John Stuart Mill, the high priest of negative liberty, was turning his attention in “Chapters on Socialism” towards a future ideal of communal harmony. Mill showed that forms of property ownership, rather than being the sacrosanct foundations of modern society, simply reflected the cultural ethos of each civilisation. Private property had no unimpeachable status.

At the same time, there was a growing awareness that the wealth wrought by the industrial revolution and empire was not being evenly spread. The 1880s downturn witnessed the rediscovery of poverty as the dark continents of outcast London, Manchester and Liverpool were traversed by growing numbers of journalists and social investigators. While W T Stead exposed in the Pall Mall Gazette the immoral underbelly of the capital, Charles Booth walked the streets of the East End to discover rates of poverty far higher than even the socialists had predicted. As Beatrice Webb put it, there was “a growing uneasiness . . . that the industrial organisation, which had yielded rent, interest, and profits on a stupendous scale, had failed to provide a decent livelihood and tolerable conditions for a majority of the inhabitants of Great Britain”.

Into this fertile intellectual terrain stepped Henry George to deliver a series of lectures on his book, Progress and Poverty (1879). Initially employed in Ireland as an American correspondent for Irish World, he soon immersed himself in Irish politics and caught the nationalists’ attention with his case for land reform. He was arrested for speaking out against the British – a political coup which made his eventual entry into British public life all the more anticipated. Thousands turned up to hear his lectures; tens of thousands read his book.

After 80 years of economic growth, George considered that “the association of poverty with progress [is] the great enigma of the day”. Moreover, it was in the most highly developed capitalist economies such as the United States and Great Britain that were found “the deepest poverty, the sharpest struggle for existence, the most enforced idleness”. An Atlanticist radical in the vein of Paine and Cobbett, George identified the problem as one of monopoly. (Lizzie Magie, the future inventor of the board game Monopoly, was a keen follower of George.) Where the “natural” means of production had been privately appropriated, rent absorbed all increases in the nation’s wealth. The monopoly of land caused fundamental inequality and poverty, because whenever there was an increase in efficiency the profits would go not to the workers – or even to the capitalists – but to the landlords. Such a grotesque monopoly of wealth was clearly in opposition to natural law. No man made the land, and by ancient right and custom it should not be permanently alienated from the nation at large. As a monopoly, held in trust for the people, land must be made to bear its fair obligations to the public weal.

George’s solution was a land-value tax, a “single tax” that would both confiscate the rent from land and remove all other forms of taxation. This would enable progress to alleviate poverty, as economic growth would be distributed more widely and a land tax would also allow for the subsidy of a vast network of public services, from utilities and housing to culture. The clarity of George’s proposals and the power of his rhetoric pushed land reform to the top of political debate. J A Hobson declared that George “exercised a more directly powerful, formative and educative influence over English radicalism of the last 15 years than any other man”. Both liberals and socialists were drawn to his ideas. In the Fabian pamphlet Capital and Land, Sydney Olivier proposed that the landlords’ “unearned increment” ought to be confiscated through taxation. Reform movements such as the Land Nationalisation Society and the English Land Restoration League sprang up around George’s public meetings, while the Marxists of the Social Democratic Federation were clearly attracted to the nationalisation argument.

Yet George was ambivalent about full-blooded socialism. The management of land through market mechanisms such as taxation, rather than government control, was his favoured option for reform. This explains why so many liberals were equally drawn to Progress and Poverty. Joseph Chamberlain declared himself “electrified” by the book and the ensuing Radical Programme reflected this pressing concern with the land question. The liberal Winston Churchill argued that the land monopoly was detrimental to the public interest, while Herbert Asquith supported Lloyd George’s proposal “to free the land that from this very hour is shackled with the chains of feudalism”.

GEORGISTS
http://en.wikipedia.org/wiki/Georgism#Influence
http://econjwatch.org/articles/geo-rent-a-plea-to-public-economists
http://renegadeecologist.blogspot.com/2012/01/if-you-want-vision-of-future-imagine.html
Views from a Georgist Ecologist

Land Value Tax, which is in my opinion the Holy Grail of legislative changes to protect wildlife, is the simplest expression of the Economic theories of Henry George. This theory goes that if we abolish all harmful taxes on our hard work and trade and instead charge a rent for the use of natural resources such as Land we will not waste them or allow private interests to exploit the rest of humanities access to them.
Such a tax would not only stimulate jobs and enterprise but put a value on all of our natural resources and force us to look after them. If it was implemented for agricultural land, where the lower value of perpetually designated wilderness or natural grazing land is reflected in its land value taxation, it would be the surest way to save the wildlife of the UK and for the least cost to the taxpayer”.

This would mean hard to farm areas, steep banks, riverbanks, rocky outcrops and areas landowners want to designate a nature reserves, which must be legally binding, could be set aside for wildlife and as such attract no taxation. The result of this would be that unproductive and marginal land would become wildlife havens and receive long term protection for future generation to enjoy.

the SINGLE TAX
http://www.henrygeorgefoundation.org/links/
http://www.nytimes.com/2011/10/16/opinion/sunday/heres-the-guy-who-invented-populism.html
by Jill Lepore / October 15, 2011

Henry George, the most popular American economic thinker of the 19th century, was a populist before populism had a name. His economic plan was known as the Single Tax. George was born in Philadelphia in 1839. He left school at 14 to sail to India and Australia on board a ship called the Hindoo. At the time, a lot of people were writing about India as a place of jewels and romance; George was struck by its poverty. Returning to Philadelphia, he became a printer’s apprentice. He went to New York where he saw, for the first time, “the shocking contrast between monstrous wealth and debasing want.” In 1858, he joined the crew of a ship sailing around the Cape Horn because it was the only way he could afford to get to California. In San Francisco, he edited a newspaper; it soon failed. He spent most of his life editing newspapers, and, as with every other industry in the 19th century, many of them failed. In 1865, George was reduced to begging in the streets.

The 19th century was the Age of Progress: the steam engine, the power loom, the railroad. (Awestruck wonder at progress animated that era the way the obsession with innovation animates American politics today.) George believed that the other side of progress was poverty. The railroad crossed the continent in 1869. From the West, George wrote an essay called “What the Railroad Will Bring Us.” His answer: the rich will get richer and the poor will get poorer. In a Fourth of July oration in 1877, George declared, “no nation can be freer than its most oppressed, richer than its poorest, wiser than its most ignorant.” In 1879, George finished a draft of his most important book. “Discovery upon discovery, and invention after invention, have neither lessened the toil of those who most need respite, nor brought plenty to the poor,” George wrote. He thought the solution was to abolish all taxes on labor and instead impose a single tax, on land. He sent the manuscript to New York. When no one would publish it, he set the type himself and begged publishers simply to ink his plates. The book, “Progress and Poverty,” sold three million copies.

George was neither a socialist nor a communist; he influenced Tolstoy but he disagreed with Marx. He saw himself as defending “the Republicanism of Jefferson and the Democracy of Jackson.” He had a bit of Melville in him (the sailor) and some of Thoreau (“We do not ride on the railroad,” Thoreau wrote from Walden. “It rides upon us.”) But, really, he was a Tocquevillian. Tocqueville believed that democracy in America was made possible by economic equality: people with equal estates will eventually fight for, and win, equal political rights. George agreed. But he thought that speculative, industrial capitalism was destroying democracy by making economic equality impossible. A land tax would solve all.

In 1886, George decided to run for mayor of New York. Democrats urged him not to, telling him he had no chance and would only raise hell. “You have relieved me of embarrassment,” George answered. “I do not want the responsibility and the work of the office of the Mayor of New York, but I do want to raise hell.” The Democrat, Abram Hewitt, won, but George got more votes than the Republican, Theodore Roosevelt.

In the 1880s, George campaigned for the single tax, free trade and ballot reform. The last succeeded. George is why, on Election Day, your polling place supplies you with a ballot that you mark in secret. This is known as an Australian ballot, and George brought it back from his voyage halfway around the world. George ran for mayor of New York again in 1897 but died in his bed four days before the election. His body lay in state at Grand Central. More than 100,000 mourners came to pay their respects. The New York Times said, “Not even Lincoln had a more glorious death.” And then: he was left behind. Even Clarence Darrow, who admired him, recanted. “The error I found in the philosophy of Henry George,” Darrow wrote, “was its cocksureness, its simplicity, and the small value that it placed on the selfish motives of men.”


This image (from a Henry George Cigar box) reflects George’s fame at the time of his run for the Mayoralty of New York in 1886 (and later in 1897). George outpolled a young Theodore Roosevelt, but lost to machine Democrat Abraham Hewitt. The rooster was George’s campaign icon, and his slogan was “The democracy of Thomas Jefferson. And although the cigars were advertised “for men”, George was in fact an outspoken advocate for women’s suffrage.

HENRY GEORGE
http://renegadeecologist.blogspot.com/search?updated-max=2011-05-23T12:37:00%2B01:00&max-results=7
by Agnes George de Mille  /  January, 1979

A hundred years ago a young unknown printer in San Francisco wrote a book he calledProgress and Poverty. He wrote after his daily working hours, in the only leisure open to him for writing. He had no real training in political economy. Indeed he had stopped schooling in the seventh grade in his native Philadelphia, and shipped before the mast as a cabin boy, making a complete voyage around the world. Three years later, he was halfway through a second voyage as able seaman when he left the ship in San Francisco and went to work as a journeyman printer. After that he took whatever honest job came to hand. All he knew of economics were the basic rules of Adam Smith, David Ricardo, and other economists, and the new philosophies of Herbert Spencer and John Stuart Mill, much of which he gleaned from reading in public libraries and from his own painstakingly amassed library. Marx was yet to be translated into English.

George was endowed for his job. He was curious and he was alertly attentive to all that went on around him. He had that rarest of all attributes in the scholar and historian that gift without which all education is useless. He had mother wit. He read what he needed to read, and he understood what he read. And he was fortunate; he lived and worked in a rapidly developing society. George had the unique opportunity of studying the formation of a civilization — the change of an encampment into a thriving metropolis. He saw a city of tents and mud change into a fine town of paved streets and decent housing, with tramways and buses. And as he saw the beginning of wealth, he noted the first appearance of pauperism. He saw degradation forming as he saw the advent of leisure and affluence, and he felt compelled to discover why they arose concurrently. The result of his inquiry,Progress and Poverty, is written simply, but so beautifully that it has been compared to the very greatest works of the English language. But George was totally unknown, and so no one would print his book. He and his friends, also printers, set the type themselves and ran off an author’s edition which eventually found its way into the hands of a New York publisher, D. Appleton & Co. An English edition soon followed which aroused enormous interest. Alfred Russel Wallace, the English scientist and writer, pronounced it “the most remarkable and important book of the present century.” It was not long before George was known internationally.

During his lifetime, he became the third most famous man in the United States, only surpassed in public acclaim by Thomas Edison and Mark Twain. George was translated into almost every language that knew print, and some of the greatest, most influential thinkers of his time paid tribute. Leo Tolstoy’s appreciation stressed the logic of George’s exposition: “The chief weapon against the teaching of Henry George was that which is always used against irrefutable and self-evident truths. This method, which is still being applied in relation to George, was that of hushing up …. People do not argue with the teaching of George, they simply do not know it.” John Dewey fervently stressed the originality of George’s work, stating that, “Henry George is one of a small number of definitely original social philosophers that the world has produced,” and “It would require less than the fingers of the two hands to enumerate those who, from Plato down, rank with Henry George among the world’s social philosophers.” And Bernard Shaw, in a letter to my mother, Anna George, years later wrote, “Your father found me a literary dilettante and militant rationalist in religion, and a barren rascal at that. By turning my mind to economics he made a man of me….”Inevitably he was reviled as well as idolized. The men who believed in what he advocated called themselves disciples, and they were in fact nothing less: working to the death, proclaiming, advocating, haranguing, and proselytizing the idea. But it was not implemented by blood, as was communism, and so was not forced on people’s attention. Shortly after George’s death, it dropped out of the political field. Once a badge of honor, the title, “Single Taxer,” came into general disuse. Except in Australia and New Zealand, Taiwan and Hong Kong and scattered cities around the world, his plan of social action has been neglected while those of Marx, Keynes, Galbraith and Friedman have won great attention, and Marx’s has been given partial implementation, for a time, at least, in large areas of the globe. But nothing that has been tried satisfies. We, the people, are locked in a death grapple and nothing our leaders offer, or are willing to offer, mitigates our troubles. George said, “The people must think because the people alone can act.” We have reached the deplorable circumstance where in large measure a very powerful few are in possession of the earth’s resources, the land and its riches and all the franchises and other privileges that yield a return. These positions are maintained virtually without taxation; they are immune to the demands made on others. The very poor, who have nothing, are the object of compulsory charity. And the rest — the workers, the middle-class, the backbone of the country — are made to support the lot by their labor.

We are taxed at every point of our lives, on everything we earn, on everything we save, on much that we inherit, on much that we buy at every stage of the manufacture and on the final purchase. The taxes are punishing, crippling, demoralizing. Also they are, to a great extent, unnecessary. But our system, in which state and federal taxes are interlocked, is deeply entrenched and hard to correct. Moreover, it survives because it is based on bewilderment; it is maintained in a manner so bizarre and intricate that it is impossible for the ordinary citizen to know what he owes his government except with highly paid help. We support a large section of our government (the Internal Revenue Service) to prove that we are breaking our own laws. And we support a large profession (tax lawyers) to protect us from our own employees. College courses are given to explain the tax forms which would otherwise be quite unintelligible. All this is galling and destructive, but it is still, in a measure, superficial. The great sinister fact, the one that we must live with, is that we are yielding up sovereignty. The nation is no longer comprised of the thirteen original states, nor of the thirty-seven younger sister states, but of the real powers: the cartels, the corporations. Owning the bulk of our productive resources, they are the issue of that concentration of ownership that George saw evolving, and warned against. These multinationals are not American any more. Transcending nations, they serve not their country’s interests, but their own. They manipulate our tax policies to help themselves. They determine our statecraft. They are autonomous. They do not need to coin money or raise armies. They use ours. And in opposition rise up the great labor unions. In the meantime, the bureaucracy, both federal and local, supported by the deadly opposing factions, legislate themselves mounting power never originally intended for our government and exert a ubiquitous influence which can be, and often is, corrupt.

I do not wish to be misunderstood as falling into the trap of the socialists and communists who condemn all privately owned business, all factories, all machinery and organizations for producing wealth. There is nothing wrong with private corporations owning the means of producing wealth. Georgists believe in private enterprise, and in its virtues and incentives to produce at maximum efficiency. It is the insidious linking together of special privilege, the unjust outright private ownership of natural or public resources, monopolies, franchises, that produce unfair domination and autocracy. The means of producing wealth differ at the root: some is thieved from the people and some is honestly earned. George differentiated; Marx did not. The consequences of our failure to discern lie at the heart of our trouble. This clown civilization is ours. We chose this of our own free will, in our own free democracy, with all the means to legislate intelligently readily at hand. We chose this because it suited a few people to have us do so. They counted on our mental indolence and we freely and obediently conformed. We chose not to think.

Henry George was a lucid voice, direct and bold, that pointed out basic truths, that cut through the confusion which developed like rot. Each age has known such diseases and each age has gone down for lack of understanding. It is not valid to say that our times are more complex than ages past and therefore the solution must be more complex. The problems are, on the whole, the same. The fact that we now have electricity and computers does not in any way controvert the fact that we can succumb to the injustices that toppled Rome.To avert such a calamity, to eliminate involuntary poverty and unemployment, and to enable each individual to attain his maximum potential, George wrote his extraordinary treatise a hundred years ago. His ideas stand: he who makes should have; he who saves should enjoy; what the community produces belongs to the community for communal uses; and God’s earth, all of it, is the right of the people who inhabit the earth. In the words of Thomas Jefferson, “The earth belongs in usufruct to the living.” This is simple and this is unanswerable. The ramifications may not be simple but they do not alter the fundamental logic. There never has been a time in our history when we have needed so sorely to hear good sense, to learn to define terms exactly, to draw reasonable conclusions. As George said, “The truth that I have tried to make clear will not find easy acceptance. If that could be, it would have been accepted long ago. If that could be, it would never have been obscured.” We are on the brink. It is possible to have another Dark Ages. But in George there is a voice of hope.

https://financialcrimeswalkingtour.crowdmap.com

SUCCESS STORIES of the WALL STREET SLAVE MARKET

http://ajhudson.wordpress.com/2012/01/28/wall-street-was-founded-on-slavery/

Wall Street is a highly influential financial district but its history is rarely talked about. In order to understand the largesse of Wall Street and the system of global capitalism, it is crucial to know Wall Street’s history. Wall Street was founded on slavery and, to this day, it remains a key pillar in upholding racial inequality and economic oppression.

New York City was a Dutch settlement known as New Amsterdam in the Dutch colonial province called New Netherland during much of the 17th century. Through the Dutch West India Company, the Dutch utilized labor of enslaved Africans who were first brought to colony around 1627. The African slaves built the wall that gives Wall Street its name, forming the northern boundary of the colony and warded off resisting natives who wanted their land back. In addition, the slaves cleared the forests, built roads and buildings, and turned up the soil for farming. Slavery was not phenomenon limited to the southern American colonies. Northern colonies, such as Boston and New York, participated in the trans-Atlantic slave trade.

In 1664, control of the colony was handed over Britain and New Amsterdam was renamed New York in honor of James II, the Duke of York. The Royal African Company had a royal monopoly on the British slave trade and James II was a major shareholder. With the Dutch gone, the British maintained the system of slavery in New York. They immediately created a series of laws to protect it. In 1665, a law was passed that legalized slavery. In 1682, slave masters were given the power of life-and-death over their slaves. Twenty years later, in 1702, New York adopted its first comprehensive slave code and it equated slave status with being African. The entire system of slavery was justified by an ideology of white supremacy that considers black Africans inferior and white Europeans superior — an ideology that still exists.

Slavery became the backbone of New York’s economic prosperity in the 1700s. To normalize this massive trade in human beings, in 1711, New York officials established a slave market on Wall Street. Slave auctions were held at Wall Street selling African slaves as property to traders wanting to buy them. Between 1700 and 1722, over 5,000 African slaves entered New York, most of whom came directly from Africa, while the rest from British colonies in the Caribbean and southern colonies. Throughout the 17th and 18th centuries, as Phyllis Eckhaus points out, New York had “the largest urban slave population in mainland North America”. Therefore, New York was a crucial location in the trans-Atlantic slave trade, which established it as the world’s financial capital. Many well-known companies and financial institutions benefitted from the trans-Atlantic slave trade.They include Lehman Brothers (which went bankrupt in 2008), J.P. Morgan Chase, Wachovia Bank of North Carolina, Aetna Insurance, Bank of America, and the Royal Bank of Scotland. Banks, such as Wachovia’s predecessors Bank of Charleston, South Carolina, and the Bank of North America, and J.P. Morgan Chase’s predecessor banks, made loans to slave owners and accepted slaves as “collateral”. When the slave owners defaulted on their loans, the banks became the new owners. The Lehman family members who established Lehman Brothers started their company to trade and invest in cotton, a cash crop produced by African slaves. Aetna sold insurance to slave owners who wanted to protect their investments in slaves aboard slave ships in case one of them died (this was a very common occurrence as millions of African slaves died on ships carrying them from Africa to the Americas). The insurance company’s policies compensated slave owners for the loss of people who were considered “property”. To this day, there are lawsuits against these corporations to seek reparations for their participation in the trans-Atlantic slave trade.

The trans-Atlantic slave trade built the foundation for modern global capitalism. Millions of Africans (somewhere between 12 to 30 million or more) were ripped away from their homes in Africa to work as slaves in European colonies in North and South America and the Caribbean. Unlike native Americans and other white Europeans, free African labor was plentiful (if one died, they could be replaced with another from Africa), Africans had no connections to American lands, and they knew how to grow essential cash crops like cotton and sugar that grew in both Africa and the Caribbean and southeastern United States. These factors made Africans the perfect slave labor force for European colonial powers. The slaves, along with performing many other services, were used to produce commodities that were sold in international markets for a profit (a characteristic of modern capitalism). In addition, slaves, themselves, were considered property and sold on markets. The benefits of this went to slave owners and investors — not the slaves. As a result, wealth was transferred from black African slaves (and their descendants) to white European slave owners and other whites who benefitted from this system (this laid the foundation for current wealth inequality between whites and blacks). This ensured that blacks would remain socioeconomically subordinate to whites for generations to come. Slavery went on for nearly 300 years from the sixteenth century to the mid-nineteenth century when Britain, America, and other countries that participated in the trans-Atlantic slave trade abolished it. Even after it ended, the foundation of modern capitalism and racial inequality was already built.

The end of slavery brought new political rights for black people in America, such as the right to vote. However, these political rights were very limited, particularly under the Jim Crow system in the American South. This system barred blacks from voting, segregated them in inferior schools, confined them to low-paying jobs, discriminated against them in numerous areas of life, and perpetuated heinous acts of racist violence against black people, such as lynching. While northern states did not have a de jure system of racial discrimination, there was similar de facto racial discrimination in housing and employment. The civil rights movement of the 1950s and ’60s eliminated legalized racial discrimination with the Civil Rights Act of 1964 and Voting Rights Act of 1965, thereby dealing a deathblow to Jim Crow. Despite the end of slavery and advancements of the civil rights movement, African-Americans remain socioeconomically oppressed. Black people disproportionately suffer more poverty, unemployment, and socioeconomic misery compared to whites and other ethnic groups. As of December 2011,unemployment for African-Americans is 15.8%, the same as it was at the beginning of 2011. While unemployment for whites is 7.5%, down from 8.5% at the beginning of the year. According to the Census Bureau’s Income, Poverty, and Health Insurance Coverage report for 2010, the poverty rate (defined as a family of four earning less than $22,314 a year) for African-Americans is 27.4%, while for whites it is 13% and 36.6% for Latinos.

The financial sector plays a substantial role in economically oppressing African-Americans. Racial segregation in housing long existed in the United States as a way to keep African-Americans living in separate, poorer neighborhoods away from whites. Redlining, which is the practice of denying or increasing the price of insurance and other financial services to certain neighborhoods based on race, contributed to racial segregation in America for much of the twentieth century. The practice began in the 1930s when the Home Owners’ Loan Corporation (HOLC), established to send loans to homeowners at risk of foreclosure, created a risk-rating system for communities to be used by mortgage lenders. The idea was to protect the long-term value of the property, which was undermined by the introduction of “undesirables” (usually blacks but also Latinos, Asians, and Jews) into a neighborhood. Using real-estate maps, the HOLC developed a classification system for communities. There were four classifications. Type A areas, coded green, were affluent areas in the suburbs and the most desirable for investment. Type B areas, coded blue, were still desirable, fully developed, but less affluent. Type C, coded yellow, were older, declining areas. Type D areas, coded red, were those with low homeownership rates, poor housing conditions, were in older, inner-city neighborhoods heavily populated by black people. These areas were considered undesirable and too risky for investment — hence the term “redlining”. As a result, HOLC did not provide any loans for black people at risk of foreclosure during the 1930s. This created a system, perpetuated by the Federal Housing Administration (FHA), lending institutions, and insurance companies, that made it difficult for black people to own homes and accumulate wealth in their communities, thereby, entrenching racial segregation and inequality.

While redlining was outlawed by the Fair Housing Act of 1968 and Community Reinvestment Act of 1977, similar racial discriminatory practices continue and achieve the same effect as redlining — further racial segregation and inequality. One common practice is known as steering. Real estate agents will steer people to neighborhoods predominantly populated by people of similar ethnic background. Whites are steered to “better”, white neighborhoods, while blacks and Latinos are steered toward neighborhoods with more black and Latinos, which tend to be poorer. Another racial discriminatory practice, which led to the financial crash and current depression, is predatory lending. Rather than deny financial services, financial institutions targeted the black community, and other nonwhite communities, to sell them risky, high-priced subprime mortgage loans. Because of this, the practice is also known as “reverse redlining”. Subprime loans are typically made to people with poor credit histories and, hence, come with higher interest rates. According to a 2009 NAACP “Discrimination and Mortgage Lending in America” report, “even when income and credit risk are equal, African Americans are up to 34 percent more likely to receive higher-rate and subprime loans” than whites. This predatory lending perpetuated a decade-long housing bubble from the late-1990s to late-2000s.

Wells Fargo is one of many financial institutions that engaged in predatory lending in black communities. As the New York Times reported in June 2009, Wells Fargo “saw the black community as fertile ground for subprime mortgages, as working-class blacks were hungry to be a part of the nation’s home-owning mania.” Revealing the big bank’s true racism, loan officers at Wells Fargo commonly referred to African-Americans as “mud people” and subprime loans as “ghetto loans”. Wells Fargo has been sued by individuals and groups, such as the NAACP, for its racial discriminatory practices. In late-November 2011, a regretful former regional vice president of Chase Home Finance in southern Florida (a subsidiary of JP Morgan Chase, whose roots lie in slavery), James Theckston, admitted the predatory lending practices of big banks to New York Times columnist Nick Kristof. In fact, predatory lending was incentivized since lenders earned higher commissions from subprime loans than normal prime loans. In his column, Kristof notes:

“One memory particularly troubles Theckston. He says that some account executives earned a commission seven times higher from subprime loans, rather than prime mortgages. Sothey looked for less savvy borrowers — those with less education, without previous mortgage experience, or without fluent English — and nudged them toward subprime loans

These less savvy borrowers were disproportionately blacks and Latinos, he said, and they ended paying a higher rate so that they were more likely to lose their homes. Senior executives seemed aware of this racial mismatch, he recalled, and frantically tried to cover it up.”

So not only did big banks intentionally push black people and other people of color to buy subprime loans but they were well aware of the racism behind their actions. Moreover, the banks did not care if people lost their homes because of these risky, high-priced subprime mortgages.

The reason why subprime mortgage loans were aggressively pushed on to millions of people was so they could be bundled up into mortgage-backed securities. In 1999, the Glass-Steagall Act, which separated commercial from investment banking, was repealed under Clinton. This made it easier for subprime mortgage loans to be bundled into securities and sold on Wall Street for massive profits. When the housing bubble burst in 2007, that led to the financial crash in September 2008 and the current economic depression. Wall Street got bailed out but the people got stuck with massive poverty and unemployment. Millions of people lost their homes and many are on the edge of foreclosure. Black and Latino households were hit the hardest. As the Center for Responsible Lending points out, around 25% of all black and Latino borrowers lost their home to foreclosure or are close to foreclosure, compared to under 12% of all white borrowers. Home equity makes up the largest portion of overall wealth in black and Latino communities. Because of the collapse of the housing bubble and resulting foreclosures, black and Latino communities have experienced a dramatic wealth decrease in their communities. According to a recent Pew Research Center report, in 2005, median net worth (or total household wealth) of white households was $134,992, for Latinos it was $18,359, and $12,124 for blacks. In 2009, median net worth for white households dropped 16% to $113,149, Latino households experienced a 66% drop to $6,325, while black households experienced a 53% drop to $5,677. Pew rightly attributes this drop to the bursting of the housing bubble and recession that followed from it.

Wall Street, since its founding as a slave market, continues to play a substantial role in oppressing African-Americans and other working-class people. To fully understand racial inequality, it is important to know Wall Street’s historical roots in the trans-Atlantic slave trade. With this knowledge, we can combat the oppression of African-Americans by challenging the greed and oligarchy of Wall Street. Fortunately, there is already a movement doing just that — Occupy Wall Street.

——–

Historical sources:

  • David McNally, Another World Is Possible: Globalization & Anti-Capitalism, (Winnipeg: Arbeiter Ring Publishing, 2006), Ch. 4, pp. 137 – 204
  • Howard Zinn, A People’s History of the United States: 1492 – Present, (New York: HarperCollins Publishers Inc., 2003), Ch, 2, pp. 23 – 39
  • Lerone Bennett, Jr., Before the Mayflower: A History of Black America, (New York: Johnson Publishing Company, Inc., 1982)
  • James W. Loewen, Lies My Teacher Told Me: Everything Your American History Textbook Got Wrong, (New York: Simon & Schuster Inc., 1995)
  • See also Douglas Massey & Nancy Denton, American Apartheid: Segregation and the Making of the Underclass (Harvard University Press, 1993) for history of racial segregation in the U.S.

http://www.africanburialground.gov/ABG_History.htm

African American history in New York City began in the Dutch colonies. The first Africans arrived in New Amsterdam as enslaved men in 1625 and 1626; the first enslaved women in 1628. They worked as farmers and builders and in the fur trade of the Dutch West India Company. Some helped build the wall intended to keep settlers safe from the native population at the location of today’s Wall Street. In 1644, the Company granted “conditional freedom” to the enslaved on condition that they make an annual fixed payment of farm produce. The children of the “conditionally freed” people, born and unborn, remained the property of the Company. Most of the families received grants to lands they had been farming before becoming “free.” At the time the area was generally undesirable swamp land. Today most of the area is in Greenwich Village. The Dutch continued to expand and to import enslaved Africans to meet growing labor needs. Between 1649 and 1659 they imported hundreds of men, women and children. In New Amsterdam, the first sales tax, an import tax of 10%, was imposed to discourage merchants from selling “human cargo” outside of the colony. Though not comprehensive, Dutch records do note that there were Africans who had never been enslaved who were living on the “free Negro lots” which today are located on land between from Astor Place and Prince Street.

In 1665, the Dutch surrendered New Amsterdam/New Netherlands to the British. For most European settlers, little changed in what became New York. For African New Yorkers, both enslaved and freed, British occupation meant severe change. Under Dutch rule, some Africans had gained half or full freedom. Even if enslaved, they had legal and social rights. One example is that no master could whip an enslaved African without the permission of the Dutch Common Council. This and other rules changed under the British rule. In a move toward commercial efficiency, the British formed the Royal African Company to import slaves directly from Africa to New York. “From the start of the English occupation the creation of a commercially profitable slave system became a joint project of both government and private interests. Unlike the Dutch West India Company which used slavery to implement colonial policy, the Royal African Company used the colony to implement slavery.” (Historian Edgar J. McManus) New York’s first slave market during the British period was established at Wall Street and the East River in 1709. In the early 1700’s there were 800 African men, women, and children in the city; about 15% of the total population. Local and state documents did not distinguish between free and enslaved Africans until 1756. Before then the term “slave” was used to describe all Africans and their decedents. They were all looked upon as valuable sources of labor.

The British enacted numerous laws that restricted where Africans could be employed and how they could be freed. Laws were passed to prevent free Africans from aiding runaway slaves. The New York “Slave Codes” grew so numerous that they are seen as a major cause of the 1712 slave revolt. In the revolt, enslaved Africans and natives gathered in an orchard on Maiden Lane with hatchets, guns, knives, and hoes and set out to burn and destroy property in the area. Nine whites were killed during the revolt. Twenty-one enslaved Africans were executed and six were reported to have committed suicide. After the revolt more laws were passed that prohibited Africans and natives from carrying weapons and entering military service. There were strict curfews and laws against gathering of more than two or three enslaved people. The revolt emphasized the growing fear that European New Yorkers had of the growing African population. At this time, Europeans in New York outnumbered people of African descent five to one, but the city contained the largest absolute number of enslaved Africans of any English colonial settlement except Charleston, South Carolina, and held the largest proportion of enslaved Africans of any northern settlement. By the first decade of the 1700’s, forty percent of New York’s households contained at least one enslaved African; again, the largest proportion of any northern settlement.

FREE MARKET
http://maap.columbia.edu/place/22.html

In 1711, New York was growing quickly, and the growing needs of the city were often supplied by slave labor. Nearly 1,000 out of about 6,400 New Yorkers were black, and at least 40 percent of the white households included a slave. In these homes, enslaved workers cooked, washed, sewed, hauled water, emptied the chamber pots, swept out the fireplaces and the chimneys, and cared for the children. Along the East River they built, loaded, and unloaded, the ships. They cleared the land uptown, and then planted and harvested the crops. And up and down the narrow streets they pedaled their master’s goods and even supplied the city’s first fast foods—fresh oysters and steaming hot corn on the cob. As the number of slaves imported into the city soared, barrel makers, butchers, carpenters, blacksmiths, and tin workers began to purchase young enslaved men in order to teach them their trades. Typically, when a slave owner ran out of work, they hired their slaves out at half the rate of free labor. Often the slaves themselves were sent out to find work. In a time when fear of a slave uprising was ever-present, the sight of so many enslaved men walking the streets looking to be hired caused alarm. Fearful white citizens began to complain. They demanded a market where slaves could be hired, bought, and sold. Finally, on December 13, 1711, the City Council passed a law “that all Negro and Indian slaves that are let out to hire…be hired at the Market house at the Wall Street Slip…” This market, known as the Meal Market (because grains were sold there), was located at the foot of Wall Street on the East River. It was the city’s first slave market.

http://www.inthesetimes.com/article/2457/the_northern_slave_trade/

The hidden history of slavery in New York calls myths of American morality into question
by Phyllis Eckhaus / January 6, 2006

Americans excel at ego-boosting myths of exceptionalism: It’s our ingenuity, energy and can-do attitude that explain our rise from frontier to world power. But what if slavery were the real secret of our success? We like to condemn slavery as an exotic evil perpetrated by plantation Southerners, but two new books and a museum exhibit provide nightmarish reminders that slavery was the norm in the early years of this country, and that up through the eve of the Civil War, Northern bankers, brokers and entrepreneurs were among slavery’s staunchest defenders. In Complicity, a team of Hartford Courant journalists investigates this history, producing 10 stories that explore how deeply the fortunes of New York and New England were tied to the slave trade. “Slavery in New York,” an exhibit at the New York Historical Society through March 5, reveals New York as a city substantially built by slaves. The companion book of the same name, elegantly designed and illustrated, anchors the exhibit in a series of scholarly essays. Together, these works echo and amplify each other, providing a kind of surround-sound opportunity for an anguished identity crisis: If our supposedly freedom-loving forebears were not “good guys,” what were they? And what are we?

From the get-go, Americans were profiteers, and plundering the New World was backbreaking work. Writing in 1645 to John Winthrop, governor of the Massachusetts Bay Colony, his brother-in-law Emanuel Downing complained, “I do not see how we can thrive until we get a stock of slaves sufficient to do all our business.” Further south, in New Amsterdam, slaves built Wall Street’s wall and cleared what became Harlem and Route 1. When a new shipload of slaves proved insufficiently hardy, Director General Peter Stuyvesant expressed his displeasure to the Dutch West India Company, insisting that the company supply the best slaves to Christian and company enterprises, while unloading the feeble on “Spaniards and unbelieving Jews.” For much of the 17th and 18th centuries, New York boasted the largest urban slave population in mainland North America. Slaves made up one-fifth the population. And white New Yorkers lived in terror of slave revolt. An alleged 1741 plot led to the jailing and torture of scores of slaves, 30 of whom were executed, 17 by burning at the stake. For slaves, the Revolutionary War was a liberating experience–but only if they fought for the British, who promised them freedom. Though George Washington sought to reclaim the colonists’ slaves, British General Guy Carleton oversaw the evacuation of more than 3,000 black Loyalists, who fled New York for Nova Scotia and other British outposts.

New York slowly and reluctantly abolished slavery; federal census figures showed slaves in the state until 1850. But the death of slavery in New York scarcely impeded the city’s business in the slave trade. In the peak years of 1859 and 1860, two slave ships bound for Africa left New York harbor every month. Although the trade was technically illegal, no one cared: A slave bought for $50 in Africa could be sold for $1,000 in Cuba, a profit margin so high that loss of slave life was easily absorbed. For every hundred slaves purchased in Africa, perhaps 48 survived the trip to the New World. By the end of the voyage, the ships that held the packed, shackled and naked human cargo were so filthy that it was cheaper to burn some vessels than decontaminate them. Law-abiding Northerners made money off slavery through the cotton trade. “King Cotton” was to antebellum America what oil is to the Middle East. Whole New England textile cities sprang up to manufacture cloth from cotton picked and processed by millions of slaves. In 1861, the United States produced more than 2 billion pounds of cotton, exporting much of it to Great Britain via New York. No wonder then that as the South began to talk secession, so too did New York Mayor Fernando Wood, who proposed that Manhattan become an independent island nation, its cotton trade intact.

How do we reconcile these facts with our mythology of the Civil War and our convenient conviction that the evils of slavery were contained within the South? Obviously, we can’t. Slavery was such a huge and gruesome enterprise, supported by so many, that it explodes inflated notions of American character. Instead, we might appropriately draw parallels between antebellum America and Nazi Germany. This is not to assert that ordinary Americans were “evil,” but rather that our insistent sorting of the world into “good guys” and “evildoers” distorts reality. Today, progressives are justly suspicious of the high-flown “freedom” rhetoric our government deploys to advance American empire. But we need always to be skeptical of reductive, righteous narratives. Far from promoting morality, such fictions allow us to hide our worst impulses from ourselves.

https://www.dwolla.com/home

PEER-TO-PEER PAYMENTS
http://blog.programmableweb.com/2011/12/06/new-payment-apis-a-survey-of-innovation-pride-and-suspicion/

“An innovator here is Dwolla, which I heard of months before finding FaceCash in our API index. Dwolla is a digital cash system that allows money to be sent to both individuals and businesses without using the credit card networks. This eliminates the credit card network fees, and that’s a big win for a lot of businesses. There is some big news coming out on the December 15th which Dwolla says will mark a pivot point for the company’s strategy, firmly setting them on a new direction. Clearly the business strategy is still evolving.

Dwolla enjoys wider developer engagement with API libraries in iOS objective C, PHP, and Ruby on github while FaceCash has none. Another nice point about the Dwolla API is the facilitator fee. This allows the developer to charge a transaction fee to users of the application, making the route to income quite clear. This built in payback mechanism is like developer bait. It’s an easy target that can motivate programmers to work with the API and this baiting concept is becoming more common.”

Dwolla_US_Map_Full.jpg

http://www.readwriteweb.com/archives/how_mobile_payments_will_evolve_in_the_next_severa.php
http://www.readwriteweb.com/archives/how_soccer_star_rio_ferdinands_app_shows_the_futur.php
http://www.readwriteweb.com/archives/the_mobile_payments_capital_of_the_us_des_moines_i.php
Permanent link to The Mobile Payments Capital of the U.S: Des Moines, Iowa?
by Dan Rowinski  / November 7, 2011

Where is the mobile payments capital of the United States? Salt Lake City has groundswell as a test city of a variety of platforms. The big cities and tech hubs like San Francisco, New York, Chicago, Boston and Portland, Ore. have a growing interest by brands and retailers. Yet, what if we told you that Des Moines, Iowa may be the U.S. leader in mobile payments? It may be true. Des Moines is the home of mobile payments platform Dwolla. It is an interesting case study – local startup creating buzz within the community and getting retailers and consumers to actually use the platform. Dwolla has created a mobile payments ecosystem from the bottom up. Could this be a model that the top-down brands like the financial institutions, tech giants and payments experts could follow to success?

Groundswell In Middle America
Within a 5-mile radius of Des Moines there are 500 to 700 business that are using mobile payments through Dwolla. The company works kind of like a payments version of Foursquare. You check at the register in the store using your phone and a pre-loaded Dwolla account. Currently, Dwolla only uses pre-loaded accounts for retail environments at this time but it is likely that the company will be able to partner with banks and financial institutions in the near future to go straight from a bank account to the retailer. The CEO of Dwolla, Ben Milne says that the company is looking at the, “cumbersome effects of having to pre-load” and will be trying to ease the pain points of consumers and merchants using the system. We talk a lot about these “pain points” when it comes to retail and payments, mobile or otherwise. Right now, in Dwolla’s infrastructure, the pain points are pre-loading and then making sure that merchants are set up on their end to handle the processing system. The latter is actually the easy part. With its FiSync, Spots and Proxi programs, the threshold for instituting Dwolla at the point of sale is actually not all that difficult. It also helps that Dwolla is a local company and can physically enter merchants’ stores to assist with the process. Dwolla sees itself more like Visa than PayPal. EBay may actually disagree with that considering that it is pushing very hard into the mobile wallets segment of the mobile payments industry and Dwolla operates in much the same way. Dwolla wants to position itself as a go-to resource for financial institutions to create a mobile payments infrastructure in communities such as Des Moines. Square, with its recent Card Case update, is also playing in this space.

des_moines_close_up_dwolla.jpg

Benefits To Consumers, Retailers
Dwolla is processing about $1 million in payments each day with about $150,000 of that coming specifically from Des Moines, according to Milne. “We think that it is a little ironic that it is in Des Moines and not Los Angeles,” Milne told ReadWriteWeb. Consumers benefit from Dwolla because of the location and social features of the platform. In June of this year, we called Dwolla’s Grid API the “Facebook Connect for mobile payments.” All sensitive personal information of the user is stored within Dwolla. An interesting quote from Milne in that article: “If Visa could blow up their current payment model and start over today, would they build a network that forces consumers to expose critical financial data in order to buy a bagel?” said Milne. The benefit of Dwolla is that it is basically electronic cash. This is one of the truest “mobile wallets” concepts. What do you do when you leave the house in the morning? Open your wallet and make sure there is some cash in there. What is stopping you from doing the same with your smartphone? Proxi was released by Dwolla in August. It allows users to open the app and see what merchants are accepting mobile payments via Dwolla in their vicinity. There has been no large marketing program tied to the Des Moines rollout of Dwolla. Milne stresses that the company is an active participant in the community, educating both merchants and consumers about where and how mobile payments can be used. The cash perspective of Dwolla is an interesting one. The company can position itself to be both the front end and back end of the payment process. As such, Google Wallet, Square, Intuit GoPayment (or any of the other dongle-based competitors) could theoretically tie into it as a backend. Dwolla is setting itself up not for competition, but for partnerships. As we have seen with Urban Airship in the mobile infrastructure space, that approach tends to work better than trying to crush potential enemies.


KILLER APP
http://www.businessinsider.com/this-28-year-old-is-making-sure-credit-cards-wont-exist-in-the-next-few-years-2011-11?op=1

There’s a tiny 12-person startup churning out of Des Moines, Iowa. Dwolla was founded by 28-year-old Ben Milne; it’s an innovative online payment system that sidesteps credit cards completely. Milne has no finance background, yet his little operation is moving between $30 and $50 million per month; it’s on track to move more than $350 million in the next year. Unlike PayPal, Dwolla doesn’t take a percentage of the transaction. It only asks for $0.25  whether it’s moving $1 or $1,000. We interviewed Milne about how he is building a credit card killer and Square rival from the middle of the nation where VCs and press are scarce.

BI: We hear you’re making credit card companies angry. How are you doing that?

Ben Milne: Ultimately we’re trying to build the next Visa, not the next PayPal.  We’re building a human network based on how we think the future of payments will work. The current model needs to be blown up. Dwolla started out of my old company.  I owned a speaker manufacturing company and we sold everything directly through a website.  I got really obsessed with interchange fees and how not to pay them.  Every time a merchant gets paid with a credit card they have to give up a percentage.  In my case, I was losing $55,000 a year to credit card companies.  I felt like they were stealing from me — I was getting paid and somebody was taking money out of my pocket. So I thought, how do I get paid through a website without paying credit card fees?  We pitched a bank, and amazingly enough they said, “We’ll give it a shot.” That was three years ago, so we’ve been working on the project for a really long time. In December of last year we figured out how to legally do what we do.

How many transactions are you doing?

The average transaction volume for Dwolla is right around $500 dollars. We move between $30 and $50 million per month.

What’s your story?

I’m 28.  I started my first company, Elemental Design, when I was 18.  I dropped out of University of Northern Iowa and built that. I started college because I thought that’s where I was supposed to go.  I applied to one college, I got in, went, and realized it wasn’t for me.  I had customers so I stopped going to class. We grew that company from a $1,200 investment to over one million in revenue in four years with three or four people and without outside investment.  The company was running itself and I wanted to work on another project.

You don’t have a finance background and yet you built Dwolla?

It’s been helpful in some strange ways.  I think the first financial institution we went into only listened to me for entertainment.  They let me get in to pitch the full executive team at the bank. I don’t look like a banker, they knew I didn’t have a banking background. They actually agreed to work with Dwolla after two hours of arguing with me and me scribbling on a whiteboard about how the whole thing could work. Had I been more typical, maybe they wouldn’t have listened to me.  In that respect, I think that not knowing how the mechanics worked was good — we just knew the way we wanted them to work.

What did you do for the first two years when Dwolla wasn’t technically legal?

Well it was legal, we just couldn’t operate outside of Iowa. For the first two years we built out the platform. We did a sh*tload of testing on a small scale because legally we couldn’t launch Dwolla nationwide.  We spent two years inside of Iowa fine-tuning Dwolla with the financial institutions, building out some of the initial models, and trying to figure out how to legally do what we do.

How’d you find a legal loophole?

Moving money is an exceptionally regulated business.  We’re in Iowa, which is sort of conservative — I don’t know if that helped us or hurt us, but in the long term I think it helped us.  We figured to do this legally, we had two options: we could take in a tremendous amount of money and go out and get licenses, which is how most people do it.  But we didn’t have access to that kind of capital here. The other option was to bring in really strategic investors, which is what we did. One of our investors is a financial institution; one is a financial services company. Our investors do credit and debit processing for banks.  So when you get a credit card from your bank, it’s being issued by companies like them.  Our investors are also distributing our product to financial institutions.  So we’ve been building a payment network, and we can do it legally because of who our investors are. We launched in December of last year and started moving $50,000 a week. Now we’re hovering around $1 million a day.  We hit that milestone in June or July. Now we’ve quieted things down. We had to tap the brakes because the way you handle money needs to be managed correctly.  We have some new partners on board and we’re going to hit it hard in December again.  We’ve got some stuff coming out in December that we think should be really big.

How does Dwolla work and how is it different from PayPal?

With Dwolla, payments are made directly from your bank account.  No credit or debit cards are allowed.  And because they don’t exist in the system, we don’t have to bring the fees into the system. You can spend any amount of money and when you do that, the person on the other end doesn’t have to pay 1, 2, 3 or 4%. They only pay $0.25 a transaction, which is especially helpful when it’s $1,000, $2,000 or $5,000 transactions.  Obviously PayPal becomes very cost prohibitive with those larger transactions. The biggest difference between ideas like this and a PayPal — and PayPal is a phenomenal idea, Square is too — is that those are built on top of networks like Visa and MasterCard. We’re building our own.

Can users only send money to Dwolla members?

No, you can send money to anyone.  Only the person sending it has to have a Dwolla account to initiate the transaction.  The person receiving it will have to sign up for an account, but we’ve been surprised at the conversion there.  It’s worked relatively well.  We leverage social networks really heavily as contact lists, which is one thing we do really different.  You can send money with an email address or with a phone number, but the most popular way to do it is to connect to Facebook and type in a friend’s name. We think, in the long term, sending money should be as easy and effortless as finding a friend on Facebook.  That’s really a behavior we try to mimic when it comes to peer-to-peer payments.  When someone does not have a Dwolla account, they get a wall post that says, “You’ve got money.”  If a friend sent that to you and it was their name and their face, you would have a different emotional connection to that than an arbitrary email from hellokitten32@aol.com.  It’s a totally different interaction and one that’s been really helpful for us in converting users into the system.

What kind of purchases and money transfers is Dwolla being used for?

We do pretty well in B2B; 11% of our business is person-to-person, and the large majority is business-to-business, consumer-to-business, and business-to-consumer.  The platform was originally built for taking in payments through websites, and we have APIs that allow you to do that.  We haven’t experienced the scale on those quite yet. Where we’ve seen a ton of transactions right now is with people paying monthly rent.  If I’m a landlord and I want to collect it, taking a credit card payment means missing out on 3% of an $1800 charge.  Dwolla is $0.25 cents. The average Dwolla transaction is right around $500. PayPal takes 2.9% plus $.30 a transaction.

Why hasn’t anyone side-stepped the credit card companies before? 

I think a lot of it is timing and luck.  And a little bit of getting your foot in the door.  One of our investors is a $1.8 billion financial institution. That’s atypical anywhere, let alone in Iowa.  Having them on board allowed us to get into a lot of rooms. We serve everyone from the landlord taking in one payment to the individual buying a coffee with their cellphone, to billion-dollar corporations.  Because we’re so atypical and look at mobile payments differently, we got in the room with the Federal Reserve and the U.S. Treasury who allowed us to have a conversation, not only from a corporate standpoint, but from a government monetary distribution standpoint. All banks are connected by one ACH system.  Credit card companies utilize that same system to pay off your credit card charges.  Banks internally set along that same system to move money in their own banks.  This system in its own right is riddled with flaws — tons of fraud issues and waste and delays.  If you’ve ever had a payment take a few days to clear, its because they’re waiting on that ACH system. We want to fix that system between the banks, take out the delays and make it instant.  If we can create this ubiquitous cash layer of distribution between consumers and merchants and developers and financial institutions, that actually fixes the problem.

No one has built a payment network in 30 years — since credit cards.  Everybody has concentrated on how we build a portal for credit cards, from digital wallets to Square. We don’t believe in credit cards.  We believe in authorization and in lower cost transfers.  Our generation actually understands that when you buy sh*t, it comes out of your bank account and you have to pay for that.

Since you’re hooked up to bank accounts, users don’t have to have money in a Dwolla account to make a transfer?

You can hold money inside of Dwolla but you don’t have to.  We’re finding a lot of consumers want to hold it there.  There is actually a positive average balance inside of Dwolla for each consumer.  We also have businesses that use Dwolla to do payroll, so they’ll keep a balance in there to cover the cost.

You could have an account of $0 in Dwolla and there would be no fee?

The only fee would be if someone paid you.  We take a quarter.  We really want that quarter. It’s all we want!

How do Dwolla’s mobile payments work?

We built out a mobile facing system; your mobile phone is just a different view of a website, so a mobile payment is just an authorization on your cell phone. We take the website, plop it into the cell phone, start adding proximity solutions so you can see which Dwolla merchants are close to you, and then make it easy to pay once you go into a store that accepts our system. Dwolla uses the GPS feature and allows you to make a payment in real-time.

So you’re saying if a Starbucks accepts Dwolla I’ll be able to see that on a Google Map, go there and charge the coffee to my phone?

Yes, you’ll just walk into the store and pay.  It’s like checking in on Foursquare, you’re just paying instead of checking in. We started in one coffee shop and now we’re working with 400 or 500 merchants.  Part of us scaling out is we  have to pick inflection points and then do some hiring to actively pursue those communities and integrate with them.  We’ll be beginning that in December.

Do banks have to pay to be integrated with Dwolla?

No, we just give them the service and then your bank account comes with Dwolla.  There are 16 banks across the country that come with Dwolla.  We’re talking to some huge financial institutions about doing the same thing. Banks are going to have trouble being relevant in mobile.  The fundamental issue with mobile payments is: how do you get to your cash regardless of where you bank?  No one has cracked that nut.  I truly feel like we’ve not only cracked that nut but we’re already selling it into financial institutions.

You don’t have to pay the banks anything to log in and access accounts?

Nope.  We built a web service that connects with the financial institutions and we do not have to pay them to work with them.  We’re a service provider to them and we work at the same time to make their customers happy.

Who are your investors?

We’ve raised $1.3 million. Veridian Credit Union is one of our primary investors. The other investor is a company called The Members Group which provides credit, debit, ACH and security solutions to banks and credit unions.

How big is the Dwolla team?

We’re about 12 people — that’s a beast of a startup in Iowa.  We were smaller last December, about 2 or 3 people, so we’ve had pretty good growth. Most everyone is in Des Moines. We’ve experienced strong early stage validation and have generated revenue that says “Hey, this thing can work well.”  We’ve got this little fire and now we’re trying to figure out how to pour a sh*tload of gas on it, and really make this scale out.  The beginning of that is in December and right now we’re trying to ensure we have the right partners to really kick that thing off really hard.

What happens in December?

Oh, it’s going to be good.

What is it?

We’ve got this product coming out in December that solves a whole bunch of really big problems inside of the ACH system, which all banks are connected to, and it does it in a way that’s never been done before.

Are you raising capital?

We have a lot of really positive conversations going on at the moment and we’re trying to figure out who the right partner to work with is.  We’re fortunate that our current investors are very supportive of what we’re doing.

How are you doing all this from Iowa?  It seems like this company should be on Wall Street.

Maybe.  Right now Des Moines is the right place for us to be.  In the future there’s going to have to be a lot of business development outside of Des Moines and there are some things we won’t be able to do from here. If we can convince people in Iowa, who are more conservative by nature, to use Dwolla then my personal feeling is we’ve really got something there.  Had we been outside of Iowa, maybe we would have tried to scale things up too quickly and maybe it would have blown up in our faces.  Maybe not. In my own naive way, I would never build a company anywhere but Iowa so maybe I just don’t know any better.  My personal feeling is, if you want to build it, where you are is just an excuse. Figure out what the area has to offer you and then leverage that.  Hustle your ass off and make it work.

NO FEES for TRANSACTIONS under $10
http://techcrunch.com/2011/12/01/dwolla-drops-fees-for-transactions-under-10-in-prelude-to-larger-announcement/
Dwolla Drops Fees For Transactions Under $10 In Prelude To Larger Announcement
by Devin Coldewey  /  December 1st, 2011

Online and mobile payment service Dwolla has announced that all transactions under $10 will have no fee from now on. This is of course great news for small businesses and merchants whose average transaction is below that. Anything above still carries the flat $0.25 fee. The company has a history of experimentation, and the payments space is certainly ripe for disruption from any number of angles, but it’s still not clear what has enabled this particular move. After all, operational overhead is a real thing, and while nobody doubts the company’s honest interest in changing payment processing, it’s not likely they just did this in the spirit of the season. In all likelihood it has something to do with the announcement they’re planning for two weeks from now, which will mark the company’s first birthday (or rather, the first anniversary of their national launch) and, according to CEO Ben Milne, represent a major and “necessary” platform pivot by the company.

PROXI
http://techcrunch.com/2011/08/24/dwolla-launches-proxi-for-proximity-based-mobile-payments/
Dwolla Launches “Proxi” For Proximity-Based Mobile Payments
by Sarah Perez  /  August 24th, 2011

Online and mobile payment platform Dwolla just launched a new feature called “Proxi” which allows users to send and receive cash-based mobile payments based on their current proximity to another connected device. The technology bypasses the need for special hardware, like Square’s plastic dongles or NFC chips built into a phone, in order to make mobile payments. Instead, the interface provides a simple way for Dwolla’s users to find nearby contacts and send them money using only the mobile app itself.

Dwolla, for those unaware, is a company with a unique take on digital payments. Its vision is that consumers, not third-parties, should dictate how their payments network operates. What this means for Dwolla and its users is a payments network that’s devoid of personal information. And most importantly, Dwolla’s inroad to this planned disruption is cash, an under-represented market in electronic payments.

Dwolla’s “Proxi” Beta
With the new “Proxi” (beta) feature, Dwolla founder Ben Milne explains that the company is looking to accomplish much of the same thing that NFC makes possible, but without the need for expensive hardware. With NFC, there’s added security, because you have to be physically present to pay. Proxi uses GPS for that same reason. When launching Proxi, the mobile app pulls up a list of those who are close to you and able to accept payments, including both nearby users and merchants. And like everything else Dwolla does, Proxi considers users’ security first. For example, you can control whether you want to be visible only to your contacts or to a wider range of Dwolla users, you can control how long you will be visible, and you can control the distance at which you are visible, with settings for 300 ft., 1 mile or 5 miles. The Proxi beta will initially be available on iOS, and will roll out to other mobile platforms (Android, Windows Phone) in the coming weeks. The beta is private for now, but TechCrunch readers canrequest immediate access here: https://www.dwolla.com/proxi/beta. There will be limited spots available, so access is on a first-come, first-serve basis.

Pros and Cons of the Dwolla System
Proxi is the sort of feature that could take Dwolla from “interesting idea” territory to becoming a more practical application. Secure, person-to-person (or person-to-business) mobile payments without the high fees associated with PayPal, or the need for special hardware? Sounds good here. The only drawback is that Dwolla doesn’t directly connect to your own bank account, in the same way that your debit card does, which could confuse first-time users who don’t understand why other financial institutions are involved. Instead, Dwolla has partnerships with The Veridian Group, a subsidiary of Veridian Credit Union, in Waterloo, Iowa, and The Members Group (TMG) another financial and credit union service organization owned by Iowa credit unions and their members. Through these organizations’, which hold the funds in Dwolla’s users’ accounts, people can send and receive money from their own bank accounts. And while Dwolla is easy to use, it’s hardly available for use everywhere, the way that your debit would be. Finally, although Dwolla’s fees aren’t outrageous, they are present. Dwolla has a flat 25-cents per transaction fee, regardless of the transaction amount. That’s lower than PayPal’s 30-cents per transaction fee. There’s also no additional percentage amount per transaction, even though PayPal currently charges an additional 2.9% for transactions under $3,000. Dwolla currently has 40,000 users, with user-to-user transactions representing the highest volume of transactions and B2B transactions representing the highest dollar value.


“RIDICULOUS MONEY”
http://www.businessinsider.com/dwolla-investors-funding-2011-12#ixzz1g3mGUHci

“Now we know a thing or two about investors. And when they see a startup with numbers like that, they start to drool.  There’s no way Dwolla can hide from them, even in Iowa. Milne says that the amount of investor interest they have is actually absurd, and the term sheets they’re seeing are “really ridiculous.” When we asked how much money investors have offered Dwolla for its next round Milne wouldn’t comment. When we asked if it was more than $50 million, he just smiled and repeated, “it’s ridiculous.” Milne says his inbox has been flooded by more than 700 investors who have reached out about funding Dwolla. It’s quite a change from the first $1 million Dwolla raised — that was a long, painful 12-month process. To help him keep track of the inquiries, Milne’s assistant started a spreadsheet that lists all 700 investors; investors Milne has heard of or who have been recommended to him are at the top. Investors are being aggressive to get their firms at the top of his stack. Milne told us about one firm that really impressed him. Two of the partners flew out to Iowa for a meeting. Soon after, Milne and the partners had a disagreement over the phone.   “They seemed to think Dwolla should go in one direction and we wanted to go in another. So I told them the deal wouldn’t work,” says Milne. The next day, one of the partners showed up on his doorstep in Iowa. In less than 24 hours he had booked a flight from Silicon Valley and flown out to Des Moine — again — to patch up the misunderstanding in person. “I was blown away,” Milne said. “That was really cool.” Dwolla will likely be raising a strategic round very soon. Despite investors waving gobs of money at him, Milne says he is looking to keep his future funding modest.”

GREECE
http://www.spiked-online.com/index.php/site/article/11390/
http://wallstreetpit.com/85811-a-financial-coup-detat-in-the-making

LIBYA
http://www.deathandtaxesmag.com/97180/goldman-sachs-and-gaddafi-a-splendid-conspiracy/

GOLDMAN SACHS CONQUERS EUROPE
http://www.independent.co.uk/news/business/analysis-and-features/what-price-the-new-democracy-goldman-sachs-conquers-europe-6264091.html
by Stephan Foley / 18 November 2011

The ascension of Mario Monti to the Italian prime ministership is remarkable for more reasons than it is possible to count. By replacing the scandal-surfing Silvio Berlusconi, Italy has dislodged the undislodgeable. By imposing rule by unelected technocrats, it has suspended the normal rules of democracy, and maybe democracy itself. And by putting a senior adviser at Goldman Sachs in charge of a Western nation, it has taken to new heights the political power of an investment bank that you might have thought was prohibitively politically toxic. This is the most remarkable thing of all: a giant leap forward for, or perhaps even the successful culmination of, the Goldman Sachs Project.

It is not just Mr Monti. The European Central Bank, another crucial player in the sovereign debt drama, is under ex-Goldman management, and the investment bank’s alumni hold sway in the corridors of power in almost every European nation, as they have done in the US throughout the financial crisis. Until Wednesday, the International Monetary Fund’s European division was also run by a Goldman man, Antonio Borges, who just resigned for personal reasons. Even before the upheaval in Italy, there was no sign of Goldman Sachs living down its nickname as “the Vampire Squid”, and now that its tentacles reach to the top of the eurozone, sceptical voices are raising questions over its influence. The political decisions taken in the coming weeks will determine if the eurozone can and will pay its debts – and Goldman’s interests are intricately tied up with the answer to that question.

Simon Johnson, the former International Monetary Fund economist, in his book 13 Bankers, argued that Goldman Sachs and the other large banks had become so close to government in the run-up to the financial crisis that the US was effectively an oligarchy. At least European politicians aren’t “bought and paid for” by corporations, as in the US, he says. “Instead what you have in Europe is a shared world-view among the policy elite and the bankers, a shared set of goals and mutual reinforcement of illusions.”

This is The Goldman Sachs Project. Put simply, it is to hug governments close. Every business wants to advance its interests with the regulators that can stymie them and the politicians who can give them a tax break, but this is no mere lobbying effort. Goldman is there to provide advice for governments and to provide financing, to send its people into public service and to dangle lucrative jobs in front of people coming out of government. The Project is to create such a deep exchange of people and ideas and money that it is impossible to tell the difference between the public interest and the Goldman Sachs interest.

Mr Monti is one of Italy’s most eminent economists, and he spent most of his career in academia and thinktankery, but it was when Mr Berlusconi appointed him to the European Commission in 1995 that Goldman Sachs started to get interested in him. First as commissioner for the internal market, and then especially as commissioner for competition, he has made decisions that could make or break the takeover and merger deals that Goldman’s bankers were working on or providing the funding for. Mr Monti also later chaired the Italian Treasury’s committee on the banking and financial system, which set the country’s financial policies. With these connections, it was natural for Goldman to invite him to join its board of international advisers. The bank’s two dozen-strong international advisers act as informal lobbyists for its interests with the politicians that regulate its work. Other advisers include Otmar Issing who, as a board member of the German Bundesbank and then the European Central Bank, was one of the architects of the euro. Perhaps the most prominent ex-politician inside the bank is Peter Sutherland, Attorney General of Ireland in the 1980s and another former EU Competition Commissioner. He is now non-executive chairman of Goldman’s UK-based broker-dealer arm, Goldman Sachs International, and until its collapse and nationalisation he was also a non-executive director of Royal Bank of Scotland. He has been a prominent voice within Ireland on its bailout by the EU, arguing that the terms of emergency loans should be eased, so as not to exacerbate the country’s financial woes. The EU agreed to cut Ireland’s interest rate this summer.

Picking up well-connected policymakers on their way out of government is only one half of the Project, sending Goldman alumni into government is the other half. Like Mr Monti, Mario Draghi, who took over as President of the ECB on 1 November, has been in and out of government and in and out of Goldman. He was a member of the World Bank and managing director of the Italian Treasury before spending three years as managing director of Goldman Sachs International between 2002 and 2005 – only to return to government as president of the Italian central bank. Mr Draghi has been dogged by controversy over the accounting tricks conducted by Italy and other nations on the eurozone periphery as they tried to squeeze into the single currency a decade ago. By using complex derivatives, Italy and Greece were able to slim down the apparent size of their government debt, which euro rules mandated shouldn’t be above 60 per cent of the size of the economy. And the brains behind several of those derivatives were the men and women of Goldman Sachs.

The bank’s traders created a number of financial deals that allowed Greece to raise money to cut its budget deficit immediately, in return for repayments over time. In one deal, Goldman channelled $1bn of funding to the Greek government in 2002 in a transaction called a cross-currency swap. On the other side of the deal, working in the National Bank of Greece, was Petros Christodoulou, who had begun his career at Goldman, and who has been promoted now to head the office managing government Greek debt. Lucas Papademos, now installed as Prime Minister in Greece’s unity government, was a technocrat running the Central Bank of Greece at the time. Goldman says that the debt reduction achieved by the swaps was negligible in relation to euro rules, but it expressed some regrets over the deals. Gerald Corrigan, a Goldman partner who came to the bank after running the New York branch of the US Federal Reserve, told a UK parliamentary hearing last year: “It is clear with hindsight that the standards of transparency could have been and probably should have been higher.” When the issue was raised at confirmation hearings in the European Parliament for his job at the ECB, Mr Draghi says he wasn’t involved in the swaps deals either at the Treasury or at Goldman.

It has proved impossible to hold the line on Greece, which under the latest EU proposals is effectively going to default on its debt by asking creditors to take a “voluntary” haircut of 50 per cent on its bonds, but the current consensus in the eurozone is that the creditors of bigger nations like Italy and Spain must be paid in full. These creditors, of course, are the continent’s big banks, and it is their health that is the primary concern of policymakers. The combination of austerity measures imposed by the new technocratic governments in Athens and Rome and the leaders of other eurozone countries, such as Ireland, and rescue funds from the IMF and the largely German-backed European Financial Stability Facility, can all be traced to this consensus. “My former colleagues at the IMF are running around trying to justify bailouts of €1.5trn-€4trn, but what does that mean?” says Simon Johnson. “It means bailing out the creditors 100 per cent. It is another bank bailout, like in 2008: The mechanism is different, in that this is happening at the sovereign level not the bank level, but the rationale is the same.” So certain is the financial elite that the banks will be bailed out, that some are placing bet-the-company wagers on just such an outcome. Jon Corzine, a former chief executive of Goldman Sachs, returned to Wall Street last year after almost a decade in politics and took control of a historic firm called MF Global. He placed a $6bn bet with the firm’s money that Italian government bonds will not default. When the bet was revealed last month, clients and trading partners decided it was too risky to do business with MF Global and the firm collapsed within days. It was one of the ten biggest bankruptcies in US history.

The grave danger is that, if Italy stops paying its debts, creditor banks could be made insolvent. Goldman Sachs, which has written over $2trn of insurance, including an undisclosed amount on eurozone countries’ debt, would not escape unharmed, especially if some of the $2trn of insurance it has purchased on that insurance turns out to be with a bank that has gone under. No bank – and especially not the Vampire Squid – can easily untangle its tentacles from the tentacles of its peers. This is the rationale for the bailouts and the austerity, the reason we are getting more Goldman, not less. The alternative is a second financial crisis, a second economic collapse. Shared illusions, perhaps? Who would dare test it?

Mario Monti, Lucas Papademos and Mario Draghi have something in common: they have all worked for the American investment bank. This is not a coincidence, but evidence of a strategy to exert influence that has perhaps already reached its limits.

a ‘FRATERNAL ASSOCIATION’
http://www.presseurop.eu/en/content/article/1177241-our-friends-goldman-sachs
Our friends from Goldman Sachs…
by Marc Roche / 16 November 2011 / Le Monde

Serious and competent, they weigh up the pros and cons and study all of the documents before giving an opinion. They have a fondness for economics, but these luminaries who enter into the temple only after a long and meticulous recruitment process prefer to remain discreet. Collectively they form an entity that is part pressure group, part fraternal association for the collection of information, and part mutual aid network. They are the craftsmen, masters and grandmasters whose mission is “to spread the truth acquired in the lodge to the rest of the world.” According to its detractors, the European network of influence woven by American bank Goldman Sachs (GS) functions like a freemasonry. To diverse degrees, the new European Central Bank President, Mario Draghi, the newly designated Prime Minister of Italy, Mario Monti, and the freshly appointed Greek Prime Minister Lucas Papademos are totemic figures in this carefully constructed web.

Heavyweight members figure large in the euro crisis
Draghi was Goldman Sachs International’s vice-chairman for Europe between 2002 and 2005, a position that put him in charge of the the “companies and sovereign” department, which shortly before his arrival, helped Greece to disguise the real nature of its books with a swap on its sovereign debt. Monti was an international adviser to Goldman Sachs from 2005 until his nomination to lead the Italian government. According to the bank, his mission was to provide advice “on European business and major public policy initiatives worldwide”. As such, he was a “door opener” with a brief to defend Goldman’s interest in the corridors of power in Europe. The third man, Lucas Papademos, was the governor of the Greek central bank from 1994 to 2002. In this capacity, he played a role that has yet to be elucidated in the operation to mask debt on his country’s books, perpetrated with assistance from Goldman Sachs. And perhaps more importantly, the current chairman of Greece’s Public Debt Management Agency, Petros Christodoulos, also worked as a trader for the bank in London. Two other heavyweight members of Goldman’s European network have also figured large in the euro crisis: Otmar Issing, a former member of the Bundesbank board of directors and a one-time chief economist of the European Central Bank, and Ireland’s Peter Sutherland, an administrator for Goldman Sachs International, who played a behind the scenes role in the Irish bailout.

Relay exclusive information to the bank’s trading rooms
How was this loyal network of intermediaries created? The US version of this magic circle is composed of former highly placed executives of the bank who effortlessly enter the highest level of the civil service. In Europe, on the other hand, Goldman Sachs has worked to accumulate a capital of relationships. But unlike its competitors, the bank has no interest in retired diplomats, highly placed national and international civil servants, or even former prime ministers and ministers of finance. Goldman’s priority has been to target central bankers and former European commissioners. Its main goal is to legally collect information on initiatives in the near future and on the interest rates set by central banks. At the same time, Goldman likes its agents to remain discreet. That is why its loyal subjects prefer not to mention their filiation in interviews or in the course of official missions. These well-connected former employees simply have to talk about this and that secure in the knowledge that their prestige will inevitably be rewarded with outspoken frankness on the part of those in powerful positions. Put simply they are there to see “which way the wind is blowing,” and thereafter to relay exclusive information to the bank’s trading rooms.

Bid for global dominance
Now that it has a former director at the head of the ECB, a former intermediary leading the Italian government, and another in charge in Greece, the bank’s antagonists are eager to highlight the extraordinary power of its network in in Frankfurt, Rome and Athens, which could prove extremely useful in these turbulent times. But looking beyond these details, the power of Goldman’s European government before and during the financial ordeal of 2008 may well prove to be an obstacle. The relationships maintained by experienced former central bankers are less likely to be useful now that politicians are aware of the unpopularity of finance professionals who are seen to be responsible for the present crisis. Where Goldman Sachs used to be able to exercise its talents, it now has to contend with opposition from public authorities raising questions about a series of scandals. A well stocked address book is no longer sufficient in a complex and highly technical financial world, where a new generation of industry leaders are less likely to be imbued with an unquestioning respect for the establishment. In their bid for global dominance, they no longer need to rely on high finance crusaders in the Goldman mould, while the quest to protect shareholder’s rights, demands for more transparency and active opposition from the media, NGOs, and institutional investors continue to erode the potency of “the network effect.”

{Translated from the French by Mark McGovern}

The giant American investment bank which is accused of helping the Greek state to conceal the real nature of its financial situation while speculating on its debts can count on a remarkable network of advisers with very close links to European leaders, reports Le Monde.

“GOVERNMENT SACHS”
http://www.presseurop.eu/en/content/article/1177241-our-friends-goldman-sachs
Goldman Sachs, the international web
by Marc Roche / 3 March 2010 / Le Monde

Petros Christodoulou affects not to care about compliments or their source. Ever since he was a teenager, this top-of-the-class student has grown used to hearing his praises sung. Appointed on 19 February to the head of the organization for the management of Greek public debt, he has arrived at the top of the tree. However, the trouble is that the former manager of global markets at the National Bank of Greece (NBG) is at the centre of an inquiry, announced on 25 February by the United States Federal Reserve, on contracts relating to Greek national debt, which link Goldman Sachs and other companies to the government in Athens. The New York based investment bank was paid as a banking advisor to the Greek government while speculating on the Hellenic nation’s sovereign debt. In particular, the American regulator is interested in the role played by Petros Christodoulou, who, in collaboration with Goldman, supervised the creation of the London company Titlos to transfer debt from Greece’s national accounts to the NBG. Before joining the NBG in 1998, Mr Christodoulou had worked as a banker for – you guessed it – Goldman Sachs.

“Government Sachs”
The affair has highlighted the powerful network of influence that Goldman Sachs has maintained in Europe since 1985 – a tightly woven group of underground and high-profile go-betweens and loyal supporters, whose address books open the doors of ministries of finance. These carefully recruited and extraordinarily well-paid advisors understand all the subtleties of the corridors of power within the European Union, and have a direct line to decision makers that they can call during moments of crisis. But who are the members of the European arm of the institution which is so powerful in Washington that it is referred to as “government Sachs”? The key figure is Peter Sutherland, chairman of Goldman Sachs International, the bank’s London-based European subsidiary. The former European commissioner for competition and ex-chairman of BP, is an essential link between the investment bank and the 27 EU member states and Russia. In France, Goldman Sachs benefits from the support of Charles de Croisset, a former chairman of Crédit Commercial de France (CCF), who took over from Jacques Mayoux, a government inspector of finances and former chairman of Société Générale. In the United Kingdom, it can count on Lord Griffiths, who advised former prime minister Margaret Thatcher, and in Germany, on Otmar Issing, a one-time board member of the Bundesbank and ex-chief economist of the European Central Bank (ECB).

Discreetly advances its interests
And that is not to mention the many Goldman alumni who go onto hold positions of power, which the bank can count on to advance its position. The best known of these is Mario Draghi, Goldman’s vice-president for Europe between 2001 and 2006, who is the current governor of the Bank of Italy and Chairman of international regulator, the Financial Stability Board. But do not expect to come across former diplomats in the austere corridors of Goldman Sachs International. As an institution with real world interests, the bank prefers to recruit financiers, economists, central bankers, and former highly placed civil servants from international economic organizations, but considers retired ambassadors to be jovial status symbols without any real high-level contacts or business sense. For Goldman Sachs, this network has the advantage of enabling it to discreetly advance its interests. In the Financial Times of 15 February, Otmar Issing published an article voicing his hostility to any attempt by the European Union to rescue Greece. However, he omitted to mention the fact that he has been an international advisor to Goldman Sachs since 2006. Nor did he say that the bank’s traders, who have been speculating against the single European currency, might well lose their shirts if the EU does intervene.


Max Keiser & Catherine Austin Fitts on Goldman Sachs (2009)

$7 TRILLION in SECRET LOANS
http://www.slate.com/articles/business/moneybox/2011/11/the_7_trillion_secret_loan_program_the_government_and_big_banks_should_be_punished_for_deceiving_the_public_about_their_hush_hush_bailout_scheme_.html
The government and the big banks deceived the public about their $7 trillion secret loan program. They should be punished
by Eliot Spitzer  /   Nov. 30, 2011

Imagine you walked into a bank, applied for a personal line of credit, and filled out all the paperwork claiming to have no debts and an income of $200,000 per year. The bank, based on these representations, extended you the line of credit. Then, three years later, after fighting disclosure all the way, you were forced by a court to tell the truth: At the time you made the statements to the bank, you actually were unemployed, you had a $1 million mortgage on your house on which you had failed to make payments for six months, and you hadn’t paid even the minimum on your credit-card bills for three months. Do you think the bank would just say: Never mind, don’t worry about it? Of course not. Whether or not you had paid back the personal line of credit, three FBI agents would be at your door within hours. Yet this is exactly what the major American banks have done to the public. During the deepest, darkest period of the financial cataclysm, the CEOs of major banks maintained in statements to the public, to the market at large, and to their own shareholders that the banks were in good financial shape, didn’t want to take TARP funds, and that the regulatory framework governing our banking system should not be altered. Trust us, they said. Yet, unknown to the public and the Congress, these same banks had been borrowing massive amounts from the government to remain afloat. The total numbers are staggering: $7.7 trillion of credit—one-half of the GDP of the entire nation. $460 billion was lent to J.P. Morgan, Bank of America, Citibank, Wells Fargo, Goldman Sachs, and Morgan Stanley alone—without anybody other than a few select officials at the Fed and the Treasury knowing. This was perhaps the single most massive allocation of capital from public to private hands in our history, and nobody was told. This was not TARP: This was secret Fed lending. And although it has since been repaid, it is clear why the banks didn’t want us to know about it: They didn’t want to admit the magnitude of their financial distress.

The banks’ claims of financial stability and solvency appear at a minimum to have been misleading—and may have been worse. Misleading statements and deception of this sort would ordinarily put a small-market player or borrower on the wrong end of a criminal investigation. So where are the inquiries into the false statements made by the bank CEOs? And where are the inquiries about the Fed and Treasury officials who stood by silently as bank representatives made claims that were false, misleading, or worse? Only now, because of superb analysis done by Bloomberg reporters—who litigated against the Fed and the banks for years to get the information—are we getting a full picture of the Fed and Treasury lending. The reporters also calculated that recipient banks and other borrowers benefited by approximately $13 billion simply by taking advantage of the “spread” between their cost of capital in these almost interest-free loans and their ability to lend the capital.

In addition to the secrecy, what is appalling is that these loans were made with no strings attached, no conditions, and no negotiation to achieve any broader public purpose. Even if one accepts the notion that the stability of the financial system could not be sacrificed, those who dispensed trillions of dollars to private parties made no apparent effort to impose even minimal obligations to condition the loans on the structural reforms needed to prevent another crisis, made no effort to require that those responsible for creating the crisis be relieved of their jobs, took zero steps towards the genuine mortgage-reform that is so necessary to begin a process of economic renewal. The dollars lent were simply a free bridge loan so the banks could push onto others the responsibility for the banks’ own risk-taking. If ever there was an event to justify the darkest, most conspiratorial view held by many that the alliance of big money on Wall Street and big government produces nothing but secret deals that profit insiders—this is it.

So what to do? The revelations of the secret loan program may provide the opportunity for Occupy Wall Street to suggest a few concrete steps that would be difficult to oppose.

First: Demand a hearing where the bank executives have to answer questions—under oath—about the actual negotiations, or lack thereof, that led to these loans; about the actual condition of each of the borrowing banks and whether that condition differed from the public statements made by the banks at the time.

Second: Require the recipient banks to use this previously undisclosed gift—the profit they made by investing this almost interest-free money—to write down the value of mortgages of those who are underwater. The loans to the banks were meant to solve a short-term liquidity problem, not be a source of profits to fund bonuses. Take back the profits and put them to apublic use.

Third: Require the government officials responsible for authorizing these loans to explain why there was no effort made to condition these loans on changes in policy that would protect the public going forward.

Fourth: Ask congress to examine every filing and statement made to Congress by the banks about their financial condition and their indebtedness to see if any misrepresentations were made in an effort to hide these trillions of dollars of loans. Misleading Congress can be a felony, and willful deception of the Congress to hide the magnitude of the public bailouts should not go unprosecuted.

Finally: Demand that politicians return all contributions made by the institutions that got hidden loans. Pressure the politicians who continue to feed from the trough of Wall Street, even as they know all too well how the banks and others have gamed the system and the public.

“RESCUE”
http://www.nomiprins.com/thoughts/2011/11/30/the-feds-european-rescue-another-back-door-us-bank-goldman-b.html
The Fed’s European “Rescue”: Another back-door US Bank / Goldman bailout?
by Nomi Prins /  November 30, 2011

In the wake of chopping its Central Bank swap rates today, the Fed has been called a bunch of names: a hero for slugging the big bailout bat in the ninth inning, and a villain for printing money to help Europe at the expense of the US. Neither depiction is right. The Fed is merely continuing its unfettered brand of bailout-economics, promoted with heightened intensity recently by President Obama and Treasury Secretary, Tim Geithner in the wake of Germany not playing bailout-ball.  Recall, a couple years ago, it was a uniquely American brand of BIG bailouts that the Fed adopted in creating $7.7 trillion of bank subsidies that ran the gamut from back-door AIG bailouts (some of which went to US / some to European banks that deal with those same US banks), to the purchasing of mortgage-backed–securities, to near zero-rate loans (for banks). Similarly, today’s move was also about protecting US banks from losses – self inflicted by dangerous derivatives-chain trades, again with each other, and with European banks. Before getting into the timing of the Fed’s god-father actions, let’s discuss its two kinds of swaps (jargon alert – a swap is a trade between two parties for some time period – you swap me a sweater for a hat because I’m cold, when I’m warmer, we’ll swap back). The Fed had both of these kinds of swaps set up and ready-to-go in the form of : dollar liquidity swap lines and foreign currency liquidity swap lines. Both are administered through Wall Street’s staunchest ally, and Tim Geithner’s old stomping ground, the New York Fed.

The dollar swap lines give foreign central banks the ability to borrow dollars against their currency, use them for whatever they want – like to shore up bets made by European banks that went wrong, and at a later date, return them. A ‘temporary dollar liquidity swap arrangement” with 14 foreign central banks was available between December 12, 2007 (several months before Bear Stearn’s collapse and 9 months before the Lehman Brothers’ bankruptcy that scared Goldman Sachs and Morgan Stanley into getting the Fed’s instant permission to become bank holding companies, and thus gain access to any Feds subsidies.) Those dollar-swap lines ended on February 1, 2010. BUT – three months later, they were back on, but this time the FOMC re-authorized dollar liquidity swap lines with only 5 central banks through January 2011. BUT – on December 21, 2010 – the FOMC extended the lines through August 1, 2011. THEN– on June 29th, 2011, these lines were extended through August 1, 2012.  AND NOW – though already available, they were announced with save-the-day fanfare as if they were just considered.

Then, there are the sneakily-dubbed “foreign currency liquidity swap” lines, which, as per the Fed’s own words, provide “foreign currency-denominated liquidity to US banks.” (Italics mine.) In other words, let US banks play with foreign bonds. These were originally used with 4 foreign banks on April, 2009  and expired on February 1, 2010. Until they were resurrected today, November 30, 2011, with foreign currency swap arrangements between the Fed, Bank of Canada, Bank of England, Bank of Japan. Swiss National Bank and the European Central Bank. They are to remain in place until February 1, 2013, longer than the original time period for which they were available during phase one of the global bank-led meltdown, the US phase. (For those following my work, we are in phase two of four, the European phase.) That’s a lot  of jargon, but keep these two things in mind: 1) these lines, by the Fed’s own words, are to provide help to US banks. and 2) they are open ended.

There are other reasons that have been thrown up as to why the Fed acted now – like, a European bank was about to fail. But, that rumor was around in the summer and nothing happened. Also, dozens of European banks have been downgraded, and several failed stress tests. Nothing. The Fed didn’t step in when it was just Greece –or Ireland  – or when there were rampant ‘contagion’ fears, and Italian bonds started trading above 7%, rising unabated despite the trick of former Goldman Sachs International advisor Mario Monti replacing former Prime Minister, Silvio Berlusconi’s with his promises of fiscally conservative actions (read: austerity measures) to come. Perhaps at that point, Goldman thought they had it all under control, but Germany’s bailout-resistence was still a thorn, which is why its bonds got hammered in the last auction, proving that big Finance will get what it wants, no matter how dirty it needs to play.  Nothing from the Fed, except a small increase in funding to the IMF. Rating agency Moody’s  announced it was looking at possibly downgrading 87 European banks. Still the Fed waited with open lines. And then, S&P downgraded the US banks again, including Goldman ,making their own financing costs more expensive and the funding of their seismic derivatives positions more tenuous. The Fed found the right moment. Bingo.

Now, consider this: the top four US banks (JPM Chase, Citibank, Bank of America and Goldman Sachs) control nearly 95% of the US derivatives market, which has grown by 20% since last year to  $235 trillion. That figure is a third of all global derivatives of $707 trillion (up from $601 trillion in December, 2010 and $583 trillion mid-year 2010. )

Breaking that down:  JPM Chase holds 11% of the world’s derivative exposure, Citibank, Bank of America, and Goldman comprise about 7% each. But, Goldman has something the others don’t – a lot fewer assets beneath its derivatives stockpile. It has 537 times as many (from 440 times last year) derivatives as assets. Think of a 537 story skyscraper on a one story see-saw. Goldman has $88 billon in assets, and $48 trillion in notional derivatives exposure. This is by FAR the highest ratio of derivatives to assets of any so-called bank backed by a government. The next highest ratio belongs to Citibank with $1.2 trillion in assets and $56 trillion in derivative exposure, or 46 to 1. JPM Chase’s ratio is 44 to 1. Bank of America’s ratio is 36 to 1. Separately Goldman happened to have lost a lot of money in Foreign Exchange derivative positions last quarter. (See Table 7.) Goldman’s loss was about equal to the total gains of the other banks, indicative of some very contrarian trade going on. In addition, Goldman has the most credit risk with respect to the capital  it holds, by a factor of 3 or 4 to 1 relative to the other big banks. So did the Fed’s timing have something to do with its star bank? We don’t really know for sure.

Sadly, until there’s another FED audit, or FOIA request, we’re not going to know which banks are the beneficiaries of the Fed’s most recent international largesse either, nor will we know what their specific exposures are to each other, or to various European banks, or which trades are going super-badly. But we do know from the US bailouts in phase one of the global meltdown, that providing ‘liquidity’ or ‘greasing the wheels of ‘ banks in times of ‘emergency’ does absolute nothing for the Main Street Economy. Not in the US. And not in Europe. It also doesn’t fix anything, it just funds bad trades with impunity.

LEVERAGE
http://www.nomiprins.com/thoughts/2011/11/21/as-the-world-crumbles-the-ecb-spins-fed-smirks-and-us-banks.html
As the World Crumbles: the ECB spins, FED smirks, and US Banks Pillage
by Nomi Prins / November 21, 2011

Often, when I troll around websites of entities like the ECB and IMF, I uncover little of startling note. They design it that way. Plus, the pace at which the global financial system can leverage bets, eviscerate capital, and cry for bank bailouts financed through austerity measures far exceeds the reporting timeliness of these bodies. That’s why, on the center of the ECB’s homepage, there’s a series of last week’s rates – and this relic – an interactive Inflation Game (I kid you not)  where in 22 different languages you can play the game of what happens when inflation goes up and down. If you’re feeling more adventurous, there’s also a game called Economia, where you can make up unemployment rates, growth rates and interest rates and see what happens. What you can’t do is see what happens if you bet trillions of dollars against various countries to see how much you can break them, before the ECB, IMF, or Fed (yes, it’ll happen) swoops in to provide “emergency” loans in return for cuts to pension funds, social programs, and national ownership of public assets. You also can’t input real world scenarios, where monetary policy doesn’t mean a thing in the face of  tidal waves of derivatives’ flow. You can’t gauge say, what happens if Goldman Sachs bets $20 billion in leveraged credit default swaps against Greece, and offsets them (partially) with JPM Chase which bets $20 billion, and offsets that with Bank of America, and then MF Global (oops) and then…..you see where I’m going with this.

We’re doomed if even their board games don’t come close to mimicking the real situation in Europe, or in the US, yet they supply funds to banks torpedoing local populations with impunity. These central entities also don’t bother to examine (or notice) the intermingled effect of leveraged derivatives and debt transactions per country; which is why no amount of funding from the ECB, or any other body, will be able to stay ahead of the hot money racing in and out of various countries.  It’s not about inflation – it’s about the speed, leverage, and daring of capital flow, that has its own power to select winners and losers. It’s not the ‘inherent’ weakness of national economies that a few years ago were doing fine, that’s hurting the euro. It’s the external bets on their success, failure, or economic capitulation running the show. Similarly, the US economy was doing much better before banks starting leveraging the hell out of our subprime market through a series of toxic, fraudulent, assets.

Elsewhere in my trolling, I came across a gem of a working paper on the IMF website, written by Ashoka Mody and Damiano Sandri,  entitled ‘The Eurozone Crisis; How Banks and Sovereigns Came to be Joined at the Hip” (The paper does not ‘necessarily represent the views of the IMF or IMF policy’.) The paper is full of mathematical formulas and statistical jargon, which may be why the media didn’t pick up on it, but hey, I got a couple of degrees in Mathematics and Statistics, so I went all out.  And it’s fascinating stuff. Basically, it shows that between the advent of the euro in 1999, and 2007, spreads between the bonds of peripheral countries and core ones in Europe were pretty stable. In other words, the risk of any country defaulting on its debt was fairly equal, and small. But after the 2007 US subprime asset crisis, and more specifically, the advent of  Federal Reserve / Treasury Department construed bailout-economics, all hell broke loose – international capital went AWOL daring default scenarios, targeting them for future bailouts, and when money leaves a country faster than it entered, the country tends to falter economically. The cycle is set.

The US subprime crisis wasn’t so much about people defaulting on loans, but the mega-magnified effects of those defaults on a $14 trillion asset pyramid created by the banks. (Those assets were subsequently sold, and used as collateral for other borrowing and esoteric derivatives combinations, to create a global $140 trillion debt binge.) As I detail in It Takes Pillage, the biggest US banks manufactured more than 75% of those $14 trillion of assets. A significant portion was sold in Europe – to local banks, municipalities, and pension funds – as lovely AAA morsels against which more debt, or leverage, could be incurred. And even thought the assets died, the debts remained.

Greek banks bought US-minted AAA assets and leveraged them. Norway did too (through the course of working on a Norwegian documentary, I discovered that 8 tiny towns in Norway bought $200 million of junk assets from Citigroup, borrowed money from local banks to pay for them, and pledged 10 years of power receipts from hydroelectric plants in return. The AAA assets are now worth zero, the power has been curtailed for residents, and the Norwegian banks want their money back–blood from a stone.) The same kind of thing happend in Italy, Spain, Portugal, Ireland, Holland, France, and even Germany – in different degrees and with specific national issues mixed in.  Problem is – when you’ve already used worthless collateral to borrow tons of money you won’t ever be able to repay, and international capital slams you in other ways, and your funding costs rise, and your internal development and lending seize up, you’re screwed – or rather the people in your country are screwed.

In the IMF paper, the authors convincingly make the case that it wasn’t just the US subprime asset meltdown itself that initiated Europe’s implosion, but the fact that our Federal Reserve and Treasury Department adopted a reckless don’t-let-em-fail doctrine. Even though Bear Stearns and Lehman Brothers failed, their investors, the huge ones anyway, were protected. The Fed subsidized, and still subsidizes, $29 billion of risk for JPM Chase’s acquisition of Bear. The philosophy of saving banks and their practices poisoned Europe, as those same financial firms played euro-roulette in the global derivatives markets, once the subprime betting train slowed down.

The first fatal stop of the US bailout mentaility was the ECB’s 2010 bailout of Anglo Irish bank, which got the lion’s share of the ECB’s Irish-bailout: $51 billion euro of ELA (Emergency Loan Assistance) and $100 billion euro of regular lending at the time. After the international financial community saw the pace and volume of Irish bank bailouts, the game of euro-roulette went turbo, country by country.  More ‘fiscally conservative’ governments are replacing any semblance of population-supportive ones. The practice of  extracting ‘fiscal prudency’ from people and providing bank subsidies for bets gone wrong has infected all of Europe. It will continue to do so, because anything less will threathen the entire Euro experiement, plus otherwise, the US banks might be on the hook again for losses, and the Fed and Treasury won’t let that happen. They’ve already demonstrated that. It’d be just sooo catastrophic.

In the wings, the smugness of Treasury Secretary Tim Geithner and Fed Chairman, Ben Bernanke is palpable – ‘hey, we acted heroically and “decisively” to provide a multi-trillion dollar smorgasbord  of subsidies for our biggest banks and look how great we  (er, they) are doing now? Seriously, Europe – get your act together already, don’t do the trickle-bailout game – just dump a boatload of money into the same banks – and a few of your own before they go under  – do it for the sake of global economic stability. It’ll really work. Trust us.’ Most of the media goes along with the notion that US banks exposed to the ‘euro-contagion’ will hurt our (nonexistent) recovery. US Banks assure us, they don’t have much exposure – it’s all hedged. (Like it was all AAA.) The press doesn’t tend to question the global harm caused by never having smacked US banks into place, cutting off their money supply, splitting them into commercial and speculative parts ala Glass-Steagall and letting the speculative parts that should have died, die, rather than enjoy public subsidization and the ability to go globe-hopping for more destructive opportunity, alongside some of the mega-global bank partners.

Today, the stock prices of the largest US banks are about as low as they were in the early part of 2009, not because of euro-contagion or Super-committee super-incompetence (a useless distraction anyway) but because of the ongoing transparency void surrouding the biggest banks amidst their central-bank-covered risks, and the political hot potato of how many emergency loans are required to keep them afloat at any given moment.  Because investors don’t know their true exposures, any more than in early 2009. Because US banks catalyzed the global crisis that is currently manifesting itself in Europe. Because there never was a separate US housing crisis and European debt crisis. Instead, there is a worldwide, systemic, unregulated, uncontained,  rapacious need for the most powerful banks and financial institutions to leverage whatever could be leveraged in whatever forms it could be leveraged in. So, now we’re just barely in the second quarter of the game of thrones, where the big banks are the kings, the ECB, IMF and the Fed are the money supply, and the populations are the powerless serfs. Yeah, let’s play the ECB inflation game, while the world crumbles.

MEANWHILE:
the WORLD ACCORDING to GOLDMAN SACHS
http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-to-congress-gave-banks-13-billion-in-income.html
Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress
by Bob Ivry, Bradley Keoun and Phil Kuntz   /  Nov 27, 2011

The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret. Now, the rest of the world can see what it was missing. The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue. Saved by the bailout, bankers lobbied against government regulations, a job made easier by the Fed, which never disclosed the details of the rescue to lawmakers even as Congress doled out more money and debated new rules aimed at preventing the next collapse. A fresh narrative of the financial crisis of 2007 to 2009 emerges from 29,000 pages of Fed documents obtained under the Freedom of Information Act and central bank records of more than 21,000 transactions. While Fed officials say that almost all of the loans were repaid and there have been no losses, details suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger.

‘Change Their Votes’
“When you see the dollars the banks got, it’s hard to make the case these were successful institutions,” says Sherrod Brown, a Democratic Senator from Ohio who in 2010 introduced an unsuccessful bill to limit bank size. “This is an issue that can unite the Tea Party and Occupy Wall Street. There are lawmakers in both parties who would change their votes now.” The size of the bailout came to light after Bloomberg LP, the parent of Bloomberg News, won a court case against the Fed and a group of the biggest U.S. banks called Clearing House Association LLC to force lending details into the open. The Fed, headed by Chairman Ben S. Bernanke, argued that revealing borrower details would create a stigma — investors and counterparties would shun firms that used the central bank as lender of last resort — and that needy institutions would be reluctant to borrow in the next crisis. Clearing House Association fought Bloomberg’s lawsuit up to the U.S. Supreme Court, which declined to hear the banks’ appeal in March 2011.

$7.77 Trillion
The amount of money the central bank parceled out was surprising even to Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009, who says he “wasn’t aware of the magnitude.” It dwarfed the Treasury Department’s better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year. “TARP at least had some strings attached,” says Brad Miller, a North Carolina Democrat on the House Financial Services Committee, referring to the program’s executive-pay ceiling. “With the Fed programs, there was nothing.” Bankers didn’t disclose the extent of their borrowing. On Nov. 26, 2008, then-Bank of America (BAC) Corp. Chief Executive Officer Kenneth D. Lewis wrote to shareholders that he headed “one of the strongest and most stable major banks in the world.” He didn’t say that his Charlotte, North Carolina-based firm owed the central bank $86 billion that day.

‘Motivate Others’
JPMorgan Chase & Co. CEO Jamie Dimon told shareholders in a March 26, 2010, letter that his bank used the Fed’s Term Auction Facility “at the request of the Federal Reserve to help motivate others to use the system.” He didn’t say that the New York-based bank’s total TAF borrowings were almost twice its cash holdings or that its peak borrowing of $48 billion on Feb. 26, 2009, came more than a year after the program’s creation. Howard Opinsky, a spokesman for JPMorgan (JPM), declined to comment about Dimon’s statement or the company’s Fed borrowings. Jerry Dubrowski, a spokesman for Bank of America, also declined to comment. The Fed has been lending money to banks through its so- called discount window since just after its founding in 1913. Starting in August 2007, when confidence in banks began to wane, it created a variety of ways to bolster the financial system with cash or easily traded securities. By the end of 2008, the central bank had established or expanded 11 lending facilities catering to banks, securities firms and corporations that couldn’t get short-term loans from their usual sources.

‘Core Function’
“Supporting financial-market stability in times of extreme market stress is a core function of central banks,” says William B. English, director of the Fed’s Division of Monetary Affairs. “Our lending programs served to prevent a collapse of the financial system and to keep credit flowing to American families and businesses.” The Fed has said that all loans were backed by appropriate collateral. That the central bank didn’t lose money should “lead to praise of the Fed, that they took this extraordinary step and they got it right,” says Phillip Swagel, a former assistant Treasury secretary under Henry M. Paulson and now a professor of international economic policy at the University of Maryland. The Fed initially released lending data in aggregate form only. Information on which banks borrowed, when, how much and at what interest rate was kept from public view. The secrecy extended even to members of President George W. Bush’s administration who managed TARP. Top aides to Paulson weren’t privy to Fed lending details during the creation of the program that provided crisis funding to more than 700 banks, say two former senior Treasury officials who requested anonymity because they weren’t authorized to speak.

Big Six
The Treasury Department relied on the recommendations of the Fed to decide which banks were healthy enough to get TARP money and how much, the former officials say. The six biggest U.S. banks, which received $160 billion of TARP funds, borrowed as much as $460 billion from the Fed, measured by peak daily debt calculated by Bloomberg using data obtained from the central bank. Paulson didn’t respond to a request for comment. The six — JPMorgan, Bank of America, Citigroup Inc. (C)Wells Fargo & Co. (WFC)Goldman Sachs Group Inc. (GS) and Morgan Stanley — accounted for 63 percent of the average daily debt to the Fed by all publicly traded U.S. banks, money managers and investment- services firms, the data show. By comparison, they had about half of the industry’s assets before the bailout, which lasted from August 2007 through April 2010. The daily debt figure excludes cash that banks passed along to money-market funds.

Bank Supervision
While the emergency response prevented financial collapse, the Fed shouldn’t have allowed conditions to get to that point, says Joshua Rosner, a banking analyst with Graham Fisher & Co. in New York who predicted problems from lax mortgage underwriting as far back as 2001. The Fed, the primary supervisor for large financial companies, should have been more vigilant as the housing bubble formed, and the scale of its lending shows the “supervision of the banks prior to the crisis was far worse than we had imagined,” Rosner says. Bernanke in an April 2009 speech said that the Fed provided emergency loans only to “sound institutions,” even though its internal assessments described at least one of the biggest borrowers, Citigroup, as “marginal.” On Jan. 14, 2009, six days before the company’s central bank loans peaked, the New York Fed gave CEO Vikram Pandit a report declaring Citigroup’s financial strength to be “superficial,” bolstered largely by its $45 billion of Treasury funds. The document was released in early 2011 by the Financial Crisis Inquiry Commission, a panel empowered by Congress to probe the causes of the crisis.

‘Need Transparency’
Andrea Priest, a spokeswoman for the New York Fed, declined to comment, as did Jon Diat, a spokesman for Citigroup. “I believe that the Fed should have independence in conducting highly technical monetary policy, but when they are putting taxpayer resources at risk, we need transparency and accountability,” says Alabama Senator Richard Shelby, the top Republican on the Senate Banking Committee. Judd Gregg, a former New Hampshire senator who was a lead Republican negotiator on TARP, and Barney Frank, a Massachusetts Democrat who chaired the House Financial Services Committee, both say they were kept in the dark. “We didn’t know the specifics,” says Gregg, who’s now an adviser to Goldman Sachs. “We were aware emergency efforts were going on,” Frank says. “We didn’t know the specifics.”

Disclose Lending
Frank co-sponsored the Dodd-Frank Wall Street Reform and Consumer Protection Act, billed as a fix for financial-industry excesses. Congress debated that legislation in 2010 without a full understanding of how deeply the banks had depended on the Fed for survival. It would have been “totally appropriate” to disclose the lending data by mid-2009, says David Jones, a former economist at the Federal Reserve Bank of New York who has written four books about the central bank. “The Fed is the second-most-important appointed body in the U.S., next to the Supreme Court, and we’re dealing with a democracy,” Jones says. “Our representatives in Congress deserve to have this kind of information so they can oversee the Fed.” The Dodd-Frank law required the Fed to release details of some emergency-lending programs in December 2010. It also mandated disclosure of discount-window borrowers after a two- year lag.

Protecting TARP
TARP and the Fed lending programs went “hand in hand,” says Sherrill Shaffer, a banking professor at the University of Wyoming in Laramie and a former chief economist at the New York Fed. While the TARP money helped insulate the central bank from losses, the Fed’s willingness to supply seemingly unlimited financing to the banks assured they wouldn’t collapse, protecting the Treasury’s TARP investments, he says. “Even though the Treasury was in the headlines, the Fed was really behind the scenes engineering it,” Shaffer says. Congress, at the urging of Bernanke and Paulson, created TARP in October 2008 after the bankruptcy of Lehman Brothers Holdings Inc. made it difficult for financial institutions to get loans. Bank of America and New York-based Citigroup each received $45 billion from TARP. At the time, both were tapping the Fed. Citigroup hit its peak borrowing of $99.5 billion in January 2009, while Bank of America topped out in February 2009 at $91.4 billion.

No Clue
Lawmakers knew none of this. They had no clue that one bank, New York-based Morgan Stanley (MS), took $107 billion in Fed loans in September 2008, enough to pay off one-tenth of the country’s delinquent mortgages. The firm’s peak borrowing occurred the same day Congress rejected the proposed TARP bill, triggering the biggest point drop ever in the Dow Jones Industrial Average. (INDU) The bill later passed, and Morgan Stanley got $10 billion of TARP funds, though Paulson said only “healthy institutions” were eligible. Mark Lake, a spokesman for Morgan Stanley, declined to comment, as did spokesmen for Citigroup and Goldman Sachs. Had lawmakers known, it “could have changed the whole approach to reform legislation,” says Ted Kaufman, a former Democratic Senator from Delaware who, with Brown, introduced the bill to limit bank size.

Moral Hazard
Kaufman says some banks are so big that their failure could trigger a chain reaction in the financial system. The cost of borrowing for so-called too-big-to-fail banks is lower than that of smaller firms because lenders believe the government won’t let them go under. The perceived safety net creates what economists call moral hazard — the belief that bankers will take greater risks because they’ll enjoy any profits while shifting losses to taxpayers. If Congress had been aware of the extent of the Fed rescue, Kaufman says, he would have been able to line up more support for breaking up the biggest banks. Byron L. Dorgan, a former Democratic senator from North Dakota, says the knowledge might have helped pass legislation to reinstate the Glass-Steagall Act, which for most of the last century separated customer deposits from the riskier practices of investment banking. “Had people known about the hundreds of billions in loans to the biggest financial institutions, they would have demanded Congress take much more courageous actions to stop the practices that caused this near financial collapse,” says Dorgan, who retired in January.

Getting Bigger
Instead, the Fed and its secret financing helped America’s biggest financial firms get bigger and go on to pay employees as much as they did at the height of the housing bubble. Total assets held by the six biggest U.S. banks increased 39 percent to $9.5 trillion on Sept. 30, 2011, from $6.8 trillion on the same day in 2006, according to Fed data. For so few banks to hold so many assets is “un-American,” says Richard W. Fisher, president of the Federal Reserve Bank of Dallas. “All of these gargantuan institutions are too big to regulate. I’m in favor of breaking them up and slimming them down.” Employees at the six biggest banks made twice the average for all U.S. workers in 2010, based on Bureau of Labor Statistics hourly compensation cost data. The banks spent $146.3 billion on compensation in 2010, or an average of $126,342 per worker, according to data compiled by Bloomberg. That’s up almost 20 percent from five years earlier compared with less than 15 percent for the average worker. Average pay at the banks in 2010 was about the same as in 2007, before the bailouts.

‘Wanted to Pretend’
“The pay levels came back so fast at some of these firms that it appeared they really wanted to pretend they hadn’t been bailed out,” says Anil Kashyap, a former Fed economist who’s now a professor of economics at the University of Chicago Booth School of Business. “They shouldn’t be surprised that a lot of people find some of the stuff that happened totally outrageous.” Bank of America took over Merrill Lynch & Co. at the urging of then-Treasury Secretary Paulson after buying the biggest U.S. home lender, Countrywide Financial Corp. When the Merrill Lynch purchase was announced on Sept. 15, 2008, Bank of America had $14.4 billion in emergency Fed loans and Merrill Lynch had $8.1 billion. By the end of the month, Bank of America’s loans had reached $25 billion and Merrill Lynch’s had exceeded $60 billion, helping both firms keep the deal on track.

Prevent Collapse
Wells Fargo bought Wachovia Corp., the fourth-largest U.S. bank by deposits before the 2008 acquisition. Because depositors were pulling their money from Wachovia, the Fed channeled $50 billion in secret loans to the Charlotte, North Carolina-based bank through two emergency-financing programs to prevent collapse before Wells Fargo could complete the purchase. “These programs proved to be very successful at providing financial markets the additional liquidity and confidence they needed at a time of unprecedented uncertainty,” says Ancel Martinez, a spokesman for Wells Fargo. JPMorgan absorbed the country’s largest savings and loan, Seattle-based Washington Mutual Inc., and investment bank Bear Stearns Cos. The New York Fed, then headed by Timothy F. Geithner, who’s now Treasury secretary, helped JPMorgan complete the Bear Stearns deal by providing $29 billion of financing, which was disclosed at the time. The Fed also supplied Bear Stearns with $30 billion of secret loans to keep the company from failing before the acquisition closed, central bank data show. The loans were made through a program set up to provide emergency funding to brokerage firms.

‘Regulatory Discretion’
“Some might claim that the Fed was picking winners and losers, but what the Fed was doing was exercising its professional regulatory discretion,” says John Dearie, a former speechwriter at the New York Fed who’s now executive vice president for policy at the Financial Services Forum, a Washington-based group consisting of the CEOs of 20 of the world’s biggest financial firms. “The Fed clearly felt it had what it needed within the requirements of the law to continue to lend to Bear and Wachovia.” The bill introduced by Brown and Kaufman in April 2010 would have mandated shrinking the six largest firms. “When a few banks have advantages, the little guys get squeezed,” Brown says. “That, to me, is not what capitalism should be.” Kaufman says he’s passionate about curbing too-big-to-fail banks because he fears another crisis.

‘Can We Survive?’
“The amount of pain that people, through no fault of their own, had to endure — and the prospect of putting them through it again — is appalling,” Kaufman says. “The public has no more appetite for bailouts. What would happen tomorrow if one of these big banks got in trouble? Can we survive that?” Lobbying expenditures by the six banks that would have been affected by the legislation rose to $29.4 million in 2010 compared with $22.1 million in 2006, the last full year before credit markets seized up — a gain of 33 percent, according to OpenSecrets.org, a research group that tracks money in U.S. politics. Lobbying by the American Bankers Association, a trade organization, increased at about the same rate, OpenSecrets.org reported. Lobbyists argued the virtues of bigger banks. They’re more stable, better able to serve large companies and more competitive internationally, and breaking them up would cost jobs and cause “long-term damage to the U.S. economy,” according to a Nov. 13, 2009, letter to members of Congress from the FSF. The group’s website cites Nobel Prize-winning economist Oliver E. Williamson, a professor emeritus at the University of California, Berkeley, for demonstrating the greater efficiency of large companies.

‘Serious Burden’
In an interview, Williamson says that the organization took his research out of context and that efficiency is only one factor in deciding whether to preserve too-big-to-fail banks.  “The banks that were too big got even bigger, and the problems that we had to begin with are magnified in the process,” Williamson says. “The big banks have incentives to take risks they wouldn’t take if they didn’t have government support. It’s a serious burden on the rest of the economy.” Dearie says his group didn’t mean to imply that Williamson endorsed big banks. Top officials in President Barack Obama’s administration sided with the FSF in arguing against legislative curbs on the size of banks.

Geithner, Kaufman
On May 4, 2010, Geithner visited Kaufman in his Capitol Hill office. As president of the New York Fed in 2007 and 2008, Geithner helped design and run the central bank’s lending programs. The New York Fed supervised four of the six biggest U.S. banks and, during the credit crunch, put together a daily confidential report on Wall Street’s financial condition. Geithner was copied on these reports, based on a sampling of e- mails released by the Financial Crisis Inquiry Commission. At the meeting with Kaufman, Geithner argued that the issue of limiting bank size was too complex for Congress and that people who know the markets should handle these decisions, Kaufman says. According to Kaufman, Geithner said he preferred that bank supervisors from around the world, meeting in Basel, Switzerland, make rules increasing the amount of money banks need to hold in reserve. Passing laws in the U.S. would undercut his efforts in Basel, Geithner said, according to Kaufman. Anthony Coley, a spokesman for Geithner, declined to comment.

‘Punishing Success’
Lobbyists for the big banks made the winning case that forcing them to break up was “punishing success,” Brown says. Now that they can see how much the banks were borrowing from the Fed, senators might think differently, he says. The Fed supported curbing too-big-to-fail banks, including giving regulators the power to close large financial firms and implementing tougher supervision for big banks, says Fed General Counsel Scott G. Alvarez. The Fed didn’t take a position on whether large banks should be dismantled before they get into trouble. Dodd-Frank does provide a mechanism for regulators to break up the biggest banks. It established the Financial Stability Oversight Council that could order teetering banks to shut down in an orderly way. The council is headed by Geithner. “Dodd-Frank does not solve the problem of too big to fail,” says Shelby, the Alabama Republican. “Moral hazard and taxpayer exposure still very much exist.”

Below Market
Dean Baker, co-director of the Center for Economic and Policy Research in Washington, says banks “were either in bad shape or taking advantage of the Fed giving them a good deal. The former contradicts their public statements. The latter — getting loans at below-market rates during a financial crisis — is quite a gift.” The Fed says it typically makes emergency loans more expensive than those available in the marketplace to discourage banks from abusing the privilege. During the crisis, Fed loans were among the cheapest around, with funding available for as low as 0.01 percent in December 2008, according to data from the central bank and money-market rates tracked by Bloomberg. The Fed funds also benefited firms by allowing them to avoid selling assets to pay investors and depositors who pulled their money. So the assets stayed on the banks’ books, earning interest. Banks report the difference between what they earn on loans and investments and their borrowing expenses. The figure, known as net interest margin, provides a clue to how much profit the firms turned on their Fed loans, the costs of which were included in those expenses. To calculate how much banks stood to make, Bloomberg multiplied their tax-adjusted net interest margins by their average Fed debt during reporting periods in which they took emergency loans.

Added Income
The 190 firms for which data were available would have produced income of $13 billion, assuming all of the bailout funds were invested at the margins reported, the data show. The six biggest U.S. banks’ share of the estimated subsidy was $4.8 billion, or 23 percent of their combined net income during the time they were borrowing from the Fed. Citigroup would have taken in the most, with $1.8 billion. “The net interest margin is an effective way of getting at the benefits that these large banks received from the Fed,” says Gerald A. Hanweck, a former Fed economist who’s now a finance professor at George Mason University in Fairfax, Virginia. While the method isn’t perfect, it’s impossible to state the banks’ exact profits or savings from their Fed loans because the numbers aren’t disclosed and there isn’t enough publicly available data to figure it out. Opinsky, the JPMorgan spokesman, says he doesn’t think the calculation is fair because “in all likelihood, such funds were likely invested in very short-term investments,” which typically bring lower returns.

Standing Access
Even without tapping the Fed, the banks get a subsidy by having standing access to the central bank’s money, says Viral Acharya, a New York University economics professor who has worked as an academic adviser to the New York Fed. “Banks don’t give lines of credit to corporations for free,” he says. “Why should all these government guarantees and liquidity facilities be for free?” In the September 2008 meeting at which Paulson and Bernanke briefed lawmakers on the need for TARP, Bernanke said that if nothing was done, “unemployment would rise — to 8 or 9 percent from the prevailing 6.1 percent,” Paulson wrote in “On the Brink” (Business Plus, 2010).

Occupy Wall Street
The U.S. jobless rate hasn’t dipped below 8.8 percent since March 2009, 3.6 million homes have been foreclosed since August 2007, according to data provider RealtyTrac Inc., and police have clashed with Occupy Wall Street protesters, who say government policies favor the wealthiest citizens, in New York, Boston, Seattle and Oakland, California. The Tea Party, which supports a more limited role for government, has its roots in anger over the Wall Street bailouts, says Neil M. Barofsky, former TARP special inspector general and a Bloomberg Television contributing editor. “The lack of transparency is not just frustrating; it really blocked accountability,” Barofsky says. “When people don’t know the details, they fill in the blanks. They believe in conspiracies.”

In the end, Geithner had his way. The Brown-Kaufman proposal to limit the size of banks was defeated, 60 to 31. Bank supervisors meeting in Switzerland did mandate minimum reserves that institutions will have to hold, with higher levels for the world’s largest banks, including the six biggest in the U.S. Those rules can be changed by individual countries. They take full effect in 2019. Meanwhile, Kaufman says, “we’re absolutely, totally, 100 percent not prepared for another financial crisis.”


Painting by Anthony Freda www.AnthonyFreda.com

a HOLIDAY OPPORTUNITY
http://moveyourmoneyproject.org/find-bankcredit-union
http://www.findacreditunion.org/
http://www.asmarterhoice.org/

BANK TRANSFER DAY
http://thinkprogress.org/special/2011/11/03/360804/650000-americans-credit-unions/
650,000 Americans Joined Credit Unions Last Month — More Than In All Of 2010 Combined
by Zaid Jilani on Nov 3, 2011

One of the tactics the 99 Percenters are using to take back the country from the 1 percent is to move their money from big banks to credit unions, community banks, and other smaller financial unions that aren’t gambling with our nation’s future. Now, the Credit Union National Association (CUNA) reports that a whopping 650,000 Americans have joined credit unions since Sept. 29 — the date that Bank of America announced it would start charging a $5 monthly debit fee, a move it backed down on this week. To put that in perspective, there were only 600,000 new members for credit unions in all of 2010. “These results indicate that consumers are clearly making a smarter choice by moving to credit unions where, on average, they will save about $70 a year in fewer or no fees, lower rates on loans and higher return on savings,” said CUNA President Bill Cheney. This Saturday, 99 Percenters are calling on Americans to move their money from big banks to credit unions and community banks on what is being called “Bank Transfer Day.” If you want to stand with the 99 Percent and take part in this action, use the Move Your Money project’s community bank and credit union finder tool to find out how.

http://www.cuna.org/public/press/press-release/issues/hundreds-thousands-of-consumers-billions-of-$$-move-credit-unions
http://www.americanbanker.com/issues/176_214/customers-flee-for-credit-unions-1043783-1.html
Bank Customers Flee to CUs
by Ed Roberts / 11.3.2011

An estimated 650,000 consumers have closed their bank accounts and opted for credit union membership over the past four weeks, according to CUNA, bringing the approach to Saturday’s Bank Transfer Day to a crescendo. In a survey of 5,000 of its credit union members CUNA estimates that at least 650,000 consumers across the nation have joined credit unions since Sept. 29, the day Bank of America unveiled its now-rescinded $5 monthly debit card fee. Also during that time, CUNA estimates that credit unions have added $4.5 billion in new savings accounts, likely from the new members and existing members shifting their funds. The survey results also show that more than four in every five credit unions experiencing member growth since Sept. 29 attributed the growth to consumer reaction to new fees imposed by banks, or a combination of consumer reactions to the new bank fees plus the social media-inspired “Bank Transfer Day,” Nov. 5. “These results indicate that consumers are clearly making a smarter choice by moving to credit unions where, on average, they will save about $70 a year in fewer or no fees, lower rates on loans and higher return on savings.” said CUNA President Bill Cheney. Cheney said the growth is particularly noticeable at larger credit unions (those with $100 million or more in assets, which account for about 20% of all credit unions – but count about 80% of all credit union members). The CUNA survey shows that more than 70% of these credit unions reported they have seen growth in memberships and deposits since Sept. 29.

HOW to JOIN a CREDIT UNION
http://motherjones.com/politics/2011/11/how-to-move-money-big-banks-credit
How Do I Move My Money Out of a Big Bank?
by Josh Harkinson / Nov. 3, 2011

Saturday is the deadline for Bank Transfer Day, the call for a mass money exodus from big banks to credit unions and small community banks. Over 80,000 have pledged online to punish “too big to fail” banks by withdrawing their funds. Still on the fence? Wondering where to start? We’ve got a handy primer below on how it works, and check out what happened when MoJo reporter Josh Harkinson tried moving his money out of Wells Fargo.

Why would I want to move my money out of my existing bank?
You’ll probably save money in the long run. According to a 2009 year study by the Filene Research Institute, the average credit union account holder paid $71.47 in annual fees, compared to $183.14 paid by the typical bank customer. And new restrictions on debit card fees imposed last month by the Dodd-Frank Act have sent banks scrambling for even more ways to nickel and dime their customers in pursuit of profits. Nonprofit credit unions, on the other hand, only need to break even. They also tend to plow their money into back into basic loans in their own communities, instead of dabbling in the kind of complex and risky securitized investments that caused large banks to go bust and drag down the economy. It’s important to note that credit unions and small local banks aren’t recession-proof: a striking 17 percent of Florida’s bank failures since 2008 were community banks.
What’s the process?
Don’t expect to be able to open a credit union account and close your old bank account in one day. You’ll need to receive new checks and a debit card in the mail, switch over any automated deposits and electronic bill paying services, and wait for pending financial transactions to clear. Only then should you give your old bank the boot. Here’s a searchable map that locates credit unions near you.
How long does it take?
You’ll probably need to wait one or two weeks to get a debit card and checks in the mail, though some credit unions will issue you temporary versions. Besides that, it’s just a matter of finding the time to switch over your bills.
Aren’t credit unions less convenient than big banks?
Not necessarily. While individual credit unions typically have fewer branches than corporate banks, many participate in “shared branching,” allowing customers to make a deposit or withdrawal at other participating credit unions. Also, many credit unions have implemented advanced online banking options including direct-deposit, online bill-pay, and mobile banking using your cell phone.
What about ATMs?
Ask your local credit union if it’s a member of the Co-op Network. Customers at credit unions in the network can use a smart phone app to find any one of 24,000 fee-free ATMs across the country. “You actually get access to more fee-free ATMs than if you were at Bank of America,” says Ben Rogers, research director for the Filene Research Institute, a think tank that studies Credit Unions. Some Credit Unions will even refund any fees that you rack up using other banks’ ATMs.
If everyone moves their money out of big banks, how much money do the banks stand to lose?
Currently, total deposits for all banks and savings and loans, including personal and business accounts, come to $7.5 trillion.
Are big banks freaking out over this?
Most big banks rely on their vast numbers of personal checking and savings accounts to shore up their cash reserves and make lucrative investments. “If everybody moved their money, it would make a huge difference,” Rogers says. Still, the nearly 80,000 people who’ve made online pledges to join Bank Transfer Day probably won’t cause bankers to break a sweat—at least not yet. Add another 400,000 of them, and “you’d get not just frowns, but maybe gasps in the board room.”
How are credit unions benefiting from this?
Credit unions across the country have added upwards of 650,000 new customers since September 29 (the day Bank of America unveiled its now-defunct $5 monthly fee for debit cards), according to a survey of 5,000 credit unions by the Credit Union National Association. The group also estimates that credit unions have added $4.5 billion in new savings since then, likely from these new members and transfers from other banks. But CUNA spokesman Patrick Keefe says these numbers barely move the needle for big banks: “It’s actually a drop in the ocean for them. They are huge.”
Is there any scenario in which my big bank actually benefits if I do this?
Yes and no. If you have about $400 in a savings account and average about $1000 in a checking account and have nothing else with your bank, then you’re probably what your bank would call an “unprofitable customer.” But most banks want to keep unprofitable customers onboard in hopes of later cross-selling them on credit cards and loans. “I don’t think that there’s a ton of banks actively smiling and smirking because they are scaring away all these unprofitable customers,” Rogers says. “Nobody really wants to lose customers.”



“EXODUS”
http://techpresident.com/blog-entry/mass-exodus-big-banks-organizing-online
Mass Exodus from Big Banks is Organizing Online
by Nick Judd / November 2, 2011

Over 35,000 people have indicated support on Facebook for a mass Nov. 5 exodus of personal bank accounts from big banks and into credit unions, called “Bank Transfer Day” — one of several online groups with the same basic message, popularized by Anonymous, Occupy Wall Street and others, and just the latest in a series of ground-up actions protesting the practices of big banks. These online efforts trace their origin back to news from September, in response to new provisions in the Dodd-Frank financial overhaul law that would limit the amounts that banks could charge merchants for the use of debit cards. News broke at the time that banks would seek instead to pass the fees along to customers in the form of monthly charges for the use of the cards. As anger at a new fee during tough economic times met the current direct-action national zeitgeist, fueled by Occupy Wall Street, initiatives began to spring up online.

The “Bank Transfer Day” Facebook page belongs to an L.A. gallery owner named Kristen Christian, but the idea might actually be the brainchild of Arianna Huffington, who floated the idea in 2009 as a response to financial institutions not lending much of the money they received from the federal bank bailout. That call to action didn’t make a lasting splash at the time, but has found new life. From Santa Cruz to New Mexico to Wisconsin, credit unions are reporting an uptick in new accounts. The Progressive Change Campaign Committee, on the occasion of Bank of America’s announcement yesterday that it would not impose a planned $5 monthly fee for debit card purchases, said that over 51,000 have pledged through their platform to move their money from big banks, including 21,500 from Bank of America. PCCC co-founder Adam Green also wrote in an email that the wired progressive group plans to release an online tool, “Banxodus,” that will help people find “good-guy” banks near them.

Yesterday was a big day for online organizing against big-bank behavior. Also on occasion of the Bank of America announcement, Change.org released an announcement pointing to a 300,000-signatory petition hosted on their online petitions platform. “Bank of America announced Tuesday that it will drop its $5 debit card fee after more than 300,000 people from all 50 states joined a viral campaign on Change.org started by 22-year-old Bank of America customer Molly Katchpole,” Change.org proclaimed in a press release sent yesterday. Katchpole is enjoying national media attention, but her online petition also came amid a nationwide upheaval against the current structure of the financial services industry — and with droves of people actually taking their money away from Bank of America.

Bank of America officials said in a statement that customer input was the reason they canceled their plans. Decisions by JP Morgan Chase & Co. and Wells Fargo to walk back their own debit card fees came last week. “We have listened to our customers very closely over the last few weeks and recognize their concern with our proposed debit usage fee,” David Darnell, Bank of America’s co-chief operating officer, said in a statement. “Our customers’ voices are most important to us. As a result, we are not currently charging the fee and will not be moving forward with any additional plans to do so.” The fee reversal may have come too late for Bank of America. Local newspapers across the country are full of stories like this one, from the Worcester (Mass.) Telegram & Gazette:

For many months, Sean J. McLoughlin considered leaving Bank of America and switching to a bank that didn’t charge him fees just for having checking accounts. When Bank of America said in September it would charge customers $5 a month for using debit cards, his decision to leave the big bank became easier. “I said ‘Forget it, I’m done,’ ” he said.

TOO BIG to JAIL?
http://www.zerohedge.com/contributed/only-way-save-economy-break-giant-insolvent-banks
The Government Created the Giant Banks

As MIT economics professor and former IMF chief economist Simon Johnson points out, the official White House position is that:

(1) The government created the mega-giants, and they are not the product of free market competition

(2) The White House needs to “regulate and oversee them”, even though it is clear that the government has no real plans to regulate or oversee the banking behemoths

(3) Giant banks are good for the economy

This is false … giant banks are incredibly destructive for the economy.

We Do NOT Need the Big Banks to Help the Economy Recover

Do we need the Too Big to Fails to help the economy recover?

No.

The following top economists and financial experts believe that the economy cannot recover unless the big, insolvent banks are broken up in an orderly fashion:

  • Dean and professor of finance and economics at Columbia Business School, and chairman of the Council of Economic Advisers under President George W. Bush, R. Glenn Hubbard
  • The leading monetary economist and co-author with Milton Friedman of the leading treatise on the Great Depression, Anna Schwartz
  • Economics professor and senior regulator during the S & L crisis, William K. Black
  • Professor of entrepreneurship and finance at the Chicago Booth School of Business, Luigi Zingales

Others, like Nobel prize-winning economist Paul Krugman, think that the giant insolvent banks may need to be temporarily nationalized.

In addition, many top economists and financial experts, including Bank of Israel Governor Stanley Fischer – who was Ben Bernanke’s thesis adviser at MIT – say that – at the very least – the size of the financial giants should be limited.

Even the Bank of International Settlements – the “Central Banks’ Central Bank” – has slammed too big to fail. As summarized by the Financial Times:

The report was particularly scathing in its assessment of governments’ attempts to clean up their banks. “The reluctance of officials to quickly clean up the banks, many of which are now owned in large part by governments, may well delay recovery,” it said, adding that government interventions had ingrained the belief that some banks were too big or too interconnected to fail.

This was dangerous because it reinforced the risks of moral hazard which might lead to an even bigger financial crisis in future.

And as I noted in December 2008, the big banks are the major reason why sovereign debt has become a crisis:

 BIS points out in a new report that the bank rescue packages have transferred significant risks onto government balance sheets, which is reflected in the corresponding widening of sovereign credit default swaps:

The scope and magnitude of the bank rescue packages also meant that significant risks had been transferred onto government balance sheets. This was particularly apparent in the market for CDS referencing sovereigns involved either in large individual bank rescues or in broad-based support packages for the financial sector, including the United States. While such CDS were thinly traded prior to the announced rescue packages, spreads widened suddenly on increased demand for credit protection, while corresponding financial sector spreads tightened.

In other words, by assuming huge portions of the risk from banks trading in toxic derivatives, and by spending trillions that they don’t have, central banks have put their countries at risk from default.

Similarly, a study of 124 banking crises by the International Monetary Fund found that propping banks which are only pretending to be solvent hurts the economy:

Existing empirical research has shown that providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often abuse forbearance to take unproductive risks at government expense. The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance.

Cross-country analysis to date also shows that accommodative policy measures (such as substantial liquidity support, explicit government guarantee on financial institutions’ liabilities and forbearance from prudential regulations) tend to befiscally costly and that these particular policies do not necessarily accelerate the speed of economic recovery.

***

All too often, central banks privilege stability over cost in the heat of the containment phase: if so, they may too liberally extend loans to an illiquid bank which is almost certain to prove insolvent anyway. Also, closure of a nonviable bank is often delayed for too long, even when there are clear signs of insolvency (Lindgren, 2003). Since bank closures face many obstacles, there is a tendency to rely instead on blanket government guarantees which, if the government’s fiscal and political position makes them credible, can work albeit at the cost of placing the burden on the budget, typically squeezing future provision of needed public services.

The big banks have been bailed out to the tune of many trillions, dragging the economy down a bottomless pit from which we can’t escape. See thisthisthis and this. Unless we break them up, we will never escape.

If We Break Up the Giants, Smaller Banks Will Thrive … And Loan More to Main Street

Do we need to keep the TBTFs to make sure that loans are made?

Nope.

USA Today points out:

Banks that received federal assistance during the financial crisis reduced lending more aggressively and gave bigger pay raises to employees than institutions that didn’t get aid, a USA TODAY/American University review found.

***

The amount of loans outstanding to businesses and individuals fell 9.1% for the 12 months ending Sept. 30, 2009, at banks that participated in TARP compared with a 6.2% drop at banks that didn’t.

Dennis Santiago – CEO and Managing Director of Institutional Risk Analytics (Chris Whalen’s company) – notes:

The really shocking numbers are in the unused line of credit commitments of banks to U.S. business. This is the canary number I like to look at because it is a direct expression of banking and finance confidence in Main Street industry. It’s gone from $92 billion in Dec -2007 to just $24 billion as of Sep-2010. More importantly, the vast majority of this contraction of credit availability to American industry has been by the larger banks, C&I LOC from $87B down to $18.8B by the institutions with assets over $10B. Poof!

Fortune reports that smaller banks are stepping in to fill the lending void left by the giant banks’ current hesitancy to make loans. Indeed, the article points out that the only reason that smaller banks haven’t been able to expand and thrive is that the too-big-to-fails have decreased competition:

Growth for the nation’s smaller banks represents a reversal of trends from the last twenty years, when the biggest banks got much bigger and many of the smallest players were gobbled up or driven under…

As big banks struggle to find a way forward and rising loan losses threaten to punish poorly run banks of all sizes, smaller but well capitalized institutions have a long-awaited chance to expand.

BusinessWeek notes:

As big banks struggle, community banks are stepping in to offer loans and lines of credit to small business owners…

At a congressional hearing on small business and the economic recovery earlier this month, economist Paul Merski, of the Independent Community Bankers of America, a Washington (D.C.) trade group, told lawmakers that community banks make 20% of all small-business loans, even though they represent only about 12% of all bank assets. Furthermore, he said that about 50% of all small-business loans under $100,000 are made by community banks…

Indeed, for the past two years, small-business lending among community banks has grown at a faster rate than from larger institutions, according to Aite Group, a Boston banking consultancy. “Community banks are quickly taking on more market share not only from the top five banks but from some of the regional banks,” says Christine Barry, Aite’s research director. “They are focusing more attention on small businesses than before. They are seeing revenue opportunities and deploying the right solutions in place to serve these customers.”

Fed Governor Daniel K. Tarullo said:

The importance of traditional financial intermediation services, and hence of the smaller banks that typically specialize in providing those services, tends to increase during times of financial stress. Indeed, the crisis has highlighted the important continuing role of community banks…

For example, while the number of credit unions has declined by 42 percent since 1989, credit union deposits have more than quadrupled, and credit unions have increased their share of national deposits from 4.7 percent to 8.5 percent. In addition, some credit unions have shifted from the traditional membership based on a common interest to membership that encompasses anyone who lives or works within one or more local banking markets. In the last few years, some credit unions have also moved beyond their traditional focus on consumer services to provide services to small businesses, increasing the extent to which they compete with community banks.

Thomas M. Hoenig pointed out in a speech at a U.S. Chamber of Commerce summit in Washington:

During the recent financial crisis, losses quickly depleted the capital of these large, over-leveraged companies. As expected, these firms were rescued using government funds from the Troubled Asset Relief Program (TARP). The result was an immediate reduction in lending to Main Street, as the financial institutions tried to rebuild their capital. Although these institutions have raised substantial amounts of new capital, much of it has been used to repay the TARP funds instead of supporting new lending.

On the other hand, Hoenig pointed out:

In 2009, 45 percent of banks with assets under $1 billion increased their business lending.

45% is about 45% more  than the amount of increased lending by the too big to fails.

Indeed, some very smart people say that the big banks aren’t really focusing as much on the lending business as smaller banks.

Specifically since Glass-Steagall was repealed in 1999, the giant banks have made much of their money in trading assets, securities, derivatives and other speculative bets, the banks’ own paper and securities, and in other money-making activities which have nothing to do with traditional depository functions.

Now that the economy has crashed, the big banks are making very few loans to consumers or small businesses because theystill have trillions in bad derivatives gambling debts to pay off, and so they are only loaning to the biggest players and those who don’t really need credit in the first place. See this and this.

So we don’t really need these giant gamblers. We don’t reallyneed JP Morgan, Citi, Bank of America, Goldman Sachs or Morgan Stanley. What we need are dedicated lenders.

The Fortune article discussed above points out that the banking giants are not necessarily more efficient than smaller banks:

The largest banks often don’t show the greatest efficiency. This now seems unsurprising given the deep problems that the biggest institutions have faced over the past year.

“They actually experience diseconomies of scale,” Narter wrote of the biggest banks. “There are so many large autonomous divisions of the bank that the complexity of connecting them overwhelms the advantage of size.”

And Governor Tarullo points out some of the benefits of small community banks over the giant banks:

Many community banks have thrived, in large part because their local presence and personal interactions give them an advantage in meeting the financial needs of many households, small businesses, and agricultural firms. Their business model is based on an important economic explanation of the role of financial intermediaries–to develop and apply expertise that allows a lender to make better judgments about the creditworthiness of potential borrowers than could be made by a potential lender with less information about the borrowers.

A small, but growing, body of research suggests that the financial services provided by large banks are less-than-perfect substitutes for those provided by community banks.

It is simply not true that we need the mega-banks. In fact, as many top economists and financial analysts have said, the “too big to fails” are actually stifling competition from smaller lenders and credit unions, and dragging the entire economy down into a black hole.

The Failure to Break Up the Big Banks Is Causing Rampant Fraud


Top economists and experts on fraud say that fraud is not only widespread, it is actually the business model adopted by the giant banks. See thisthisthisthisthis and this.

In addition, Richard Alford – former New York Fed economist, trading floor economist and strategist – showed that banks that get too big benefit from “information asymmetry” which disrupts the free market.

Nobel prize winning economist Joseph Stiglitz noted in September that giants like Goldman are using their size to manipulate the market:

“The main problem that Goldman raises is a question of size: ‘too big to fail.’ In some markets, they have a significant fraction of trades. Why is that important? They trade both on their proprietary desk and on behalf of customers. When you do that and you have a significant fraction of all trades, you have a lot of information.”

Further, he says, “That raises the potential of conflicts of interest, problems of front-running, using that inside information for your proprietary desk. And that’s why the Volcker report came out and said that we need to restrict the kinds of activity that these large institutions have. If you’re going to trade on behalf of others, if you’re going to be a commercial bank, you can’t engage in certain kinds of risk-taking behavior.”

The giants (especially Goldman Sachs) have also used high-frequency program trading which not only distorted the markets– making up more than 70% of stock trades – but which also let the program trading giants take a sneak peak at what the real (aka “human”) traders are buying and selling, and then trade on the insider information. See thisthisthisthis and this. (This is frontrunning, which is illegal; but it is a lot bigger than garden variety frontrunning, because the program traders are not only trading based on inside knowledge of what their own clients are doing, they are also trading based on knowledge of what all other traders are doing).

Goldman also admitted that its proprietary trading program can “manipulate the markets in unfair ways”. The giant banks have also allegedly used their Counterparty Risk Management Policy Group (CRMPG) to exchange secret information and formulate coordinated mutually beneficial actions, all with thegovernment’s blessings.

In other words, a handful of giants doing it, it can manipulate the entire economy in ways which are not good for the American citizen.

The Failure to Break Up the Big Banks Is Dooming Us to a Derivatives Depression

All independent experts agree that unless we rein in derivatives, will have another – bigger – financial crisis.

But the big banks are preventing derivatives from being tamed.

We have also pointed out that derivatives are still very dangerous for the economy, that the derivatives “reform” legislation previously passed has probably actually weakenedexisting regulations, and the legislation was “probably written by JP Morgan and Goldman Sachs“.

As I noted last year

Harold Bradley – who oversees almost $2 billion in assets as chief investment officer at the Kauffman Foundation – told the Reuters Global Exchanges and Trading Summit in New York that a cabal is preventing swap derivatives from being forced onto clearing exchanges:

There is no incentive from the moneyed interests in either Washington or New York to change it…

I believe we are in a cabal. There are five or six players only who are engaged and dominant in this marketplace and apparently they own the regulatory apparatus. Everybody is afraid to regulate them.

That’s bad enough.

But Bob Litan of the Brookings Institute wrote a paper (here’s asummary) showing that – even if real derivatives legislation is ever passed – the 5 big derivatives players will still prevent any real change. James Kwak notes that Litan is no radical, but has previously written in defense in financial “innovation”.

Here’s a good summary from Rortybomb, showing that this is yet another reason to break up the too big to fails:

Litan is worried about the “Dealer’s Club” of the major derivatives players. I particularly like this paper as the best introduction to the current oligarchy that takes place in the very profitable over-the-counter derivatives trading market and credit default swap market. [Litton says]:

I have written this essay primarily to call attention to the main impediments to meaningful reform: the private actors who now control the trading of derivatives and all key elements of the infrastructure of derivatives trading, the major dealer banks. The importance of this “Derivatives Dealers’ Club” cannot be overstated. All end-users who want derivatives products, CDS in particular, must transact with dealer banks…I will argue that the major dealer banks have strong financial incentives and the ability to delay or impede changes from the status quo — even if the legislative reforms that are now being widely discussed are adopted — that would make the CDS and eventually other derivatives markets safer and more transparent for all concerned…

Here, of course, I refer to the major derivatives dealers – the top 5 dealer-banks that control virtually all of the dealer-to-dealer trades in CDS, together with a few others that participate with the top 5 in other institutions important to the derivatives market. Collectively, these institutions have the ability and incentive, if not counteracted by policy intervention, to delay, distort or impede clearing, exchange trading and transparency

Market-makers make the most profit, however, as long as they can operate as much in the dark as is possible – so that customers don’t know the true going prices, only the dealers do. This opacity allows the dealers to keep spreads high…

In combination, these various market institutions – relating to standardization, clearing and pricing – have incentives not to rock the boat, and not to accelerate the kinds of changes that would make the derivatives market safer and more transparent. The common element among all of these institutions is strong participation, if not significant ownership, by the major dealers.

So Bob Litan is waving a giant red flag that the top dealer-banks that control the CDS market can more or less, through a variety of means he lays out convincingly in the paper, derail or significantly slow down CDS reform after the fact if it passes.

***

If you thought we’d at least get our arms around credit default swap reform from a financial reform bill, you should read this report from Litan as a giant warning flag. In case you weren’t sure if you’ve heard anyone directly lay out the case on how the market and political concentration in the United States banking sector hurts consumers and increases systemic risk through both political pressures and anticompetitive levels of control of the institutions of the market, now you have. It’s not Matt Taibbi, but it’s much further away from a “everything is actually fine and the Treasury is in control of reform” reassurance. Which should scare you, and give you yet another good reason for size caps for the major banks.

53246864840716464 2380196514216991388?l=georgewashington2.blogspot The Only Way to Save the Economy:  Break Up the Giant, Insolvent BanksMoreover, the big banks are still dumping huge amounts of their toxic derivatives on the taxpayer. And see this.

Why Aren’t They Be Broken Up?

So what is the real reason that the TBTFs aren’t being broken up?

Certainly, there is regulatory capture, cowardice and corruption:

  • Joseph Stiglitz (the Nobel prize winning economist) said recently that the U.S. government is wary of challenging the financial industry because it is politically difficult, and that he hopes the Group of 20 leaders will cajole the U.S. into tougher action
  • Economic historian Niall Ferguson asks:

    Guess which institutions are among the biggest lobbyists and campaign-finance contributors? Surprise! None other than the TBTFs [too big to fails].

  • Manhattan Institute senior fellow Nicole Gelinas agrees:

    The too-big-to-fail financial industry has been good to elected officials and former elected officials of both parties over its 25-year life span

  • Investment analyst and financial writer Yves Smith says:

    Major financial players [have gained] control over the all-important over-the-counter debt markets…It is pretty hard to regulate someone who has a knife at your throat.

  • William K. Black says:

    There has been no honest examination of the crisis because it would embarrass C.E.O.s and politicians . . .Instead, the Treasury and the Fed are urging us not to examine the crisis and to believe that all will soon be well. There have been no prosecutions of the chief executives of the large nonprime lenders that would expose the “epidemic” of fraudulent mortgage lending that drove the crisis. There has been no accountability…

    The Obama administration and Fed Chairman Ben Bernanke have refused to investigate the nature and causes of the crisis. And the administration selected Timothy Geithner, who with then Treasury Secretary Paulson bungled the bailout of A.I.G. and other favored “too big to fail” institutions, to head up Treasury.

    Now Lawrence Summers, head of the White House National Economic Council, and Mr. Geithner argue that no fundamental change in finance is needed. They want to recreate a secondary market in the subprime mortgages that caused trillions of dollars of losses.

    Traditional neo-classical economic theory, particularly “modern finance theory,” has been proven false but economists have failed to replace it. No fundamental reform can be passed when the proponents are pretending that there really is no crisis or need for change.

  • Harvard professor of government Jeffry A. Frieden says:

    Regulatory agencies are often sympathetic to the industries they regulate. This pattern is so well known among scholars that it has a name: “regulatory capture.” This effect can be due to the political influence of the industry on its regulators; or to the fact that the regulators spend so much time with their charges that they come to accept their world view; or to the prospect of lucrative private-sector jobs when regulators retire or resign.

  • Economic consultant Edward Harrison agrees:Regulating Wall Street has become difficult in large part because of regulatory capture.

But there is an even more interesting reason . . .

The number one reason the TBTF’s aren’t being broken up is [drumroll] . . . the ‘ole 80?s playbook is being used.

As the New York Times wrote in February:

In the 1980s, during the height of the Latin American debt crisis, the total risk to the nine money-center banks in New York was estimated at more than three times the capital of those banks. The regulators, analysts say, did not force the banks to value those loans at the fire-sale prices of the moment, helping to avert a disaster in the banking system.

In other words, the nine biggest banks were all insolvent in the 1980s.

Indeed, Richard C. Koo – former economist at the Federal Reserve Bank of New York and doctoral fellow with the Fed’s Board of Governors, and now chief economist for Nomura –confirmed this fact last year in a speech to the Center for Strategic & International Studies. Specifically, Koo said that -after the Latin American crisis hit in 1982 – the New York Fed concluded that 7 out of 8 money center banks were actually “underwater” and “bankrupt”, but that the Fed hid that fact from the American people.

So the government’s failure to break up the insolvent giants – even though virtually all independent experts say that is the only way to save the economy, and even though there is no good reason not to break them up – is nothing new.

William K. Black’s statement that the government’s entire strategy now – as in the S&L crisis – is to cover up how bad things are (“the entire strategy is to keep people from getting the facts”) makes a lot more sense.


{Lehman still existed in 2007 dataset used}

http://arxiv.org/abs/1107.5728v2
The network of global corporate control
by Stefania Vitali, James B. Glattfelder & Stefano Battisto
28 Jul 2011 (v1), last revised 19 Sep 2011 (this version, v2)

“The structure of the control network of transnational corporations affects global market competition and financial stability. So far, only small national samples were studied and there was no appropriate methodology to assess control globally. We present the first investigation of the architecture of the international ownership network, along with the computation of the control held by each global player. We find that transnational corporations form a giant bow-tie structure and that a large portion of control flows to a small tightly-knit core of financial institutions. This core can be seen as an economic “super-entity” that raises new important issues both for researchers and policy makers.”


The 1318 transnational corporations that form the core of the economy. Superconnected companies are red, very connected companies are yellow. The size of the dot represents revenue (Image: PLoS One)

a SUPER-ENTITY
http://www.newscientist.com/article/mg21228354.500-revealed–the-capitalist-network-that-runs-the-world.html
Revealed – the capitalist network that runs the world
by Andy Coghlan and Debora MacKenzie / 19 October 2011

AS PROTESTS against financial power sweep the world this week, science may have confirmed the protesters’ worst fears. An analysis of the relationships between 43,000 transnational corporations has identified a relatively small group of companies, mainly banks, with disproportionate power over the global economy. The study’s assumptions have attracted some criticism, but complex systems analysts contacted by New Scientist say it is a unique effort to untangle control in the global economy. Pushing the analysis further, they say, could help to identify ways of making global capitalism more stable.

The idea that a few bankers control a large chunk of the global economy might not seem like news to New York’s Occupy Wall Street movement and protesters elsewhere. But the study, by a trio of complex systems theorists at the Swiss Federal Institute of Technology in Zurich, is the first to go beyond ideology to empirically identify such a network of power. It combines the mathematics long used to model natural systems with comprehensive corporate data to map ownership among the world’s transnational corporations (TNCs). “Reality is so complex, we must move away from dogma, whether it’s conspiracy theories or free-market,” says James Glattfelder. “Our analysis is reality-based.” Previous studies have found that a few TNCs own large chunks of the world’s economy, but they included only a limited number of companies and omitted indirect ownerships, so could not say how this affected the global economy – whether it made it more or less stable, for instance.

The Zurich team can. From Orbis 2007, a database listing 37 million companies and investors worldwide, they pulled out all 43,060 TNCs and the share ownerships linking them. Then they constructed a model of which companies controlled others through shareholding networks, coupled with each company’s operating revenues, to map the structure of economic power. The work, to be published in PloS One, revealed a core of 1318 companies with interlocking ownerships (see image). Each of the 1318 had ties to two or more other companies, and on average they were connected to 20. What’s more, although they represented 20 per cent of global operating revenues, the 1318 appeared to collectively own through their shares the majority of the world’s large blue chip and manufacturing firms – the “real” economy – representing a further 60 per cent of global revenues.

When the team further untangled the web of ownership, it found much of it tracked back to a “super-entity” of 147 even more tightly knit companies – all of their ownership was held by other members of the super-entity – that controlled 40 per cent of the total wealth in the network. “In effect, less than 1 per cent of the companies were able to control 40 per cent of the entire network,” says Glattfelder. Most were financial institutions. The top 20 included Barclays Bank, JPMorgan Chase & Co, and The Goldman Sachs Group.

John Driffill of the University of London, a macroeconomics expert, says the value of the analysis is not just to see if a small number of people controls the global economy, but rather its insights into economic stability. Concentration of power is not good or bad in itself, says the Zurich team, but the core’s tight interconnections could be. As the world learned in 2008, such networks are unstable. “If one [company] suffers distress,” says Glattfelder, “this propagates.” “It’s disconcerting to see how connected things really are,” agrees George Sugihara of the Scripps Institution of Oceanography in La Jolla, California, a complex systems expert who has advised Deutsche Bank.

Yaneer Bar-Yam, head of the New England Complex Systems Institute (NECSI), warns that the analysis assumes ownership equates to control, which is not always true. Most company shares are held by fund managers who may or may not control what the companies they part-own actually do. The impact of this on the system’s behaviour, he says, requires more analysis. Crucially, by identifying the architecture of global economic power, the analysis could help make it more stable. By finding the vulnerable aspects of the system, economists can suggest measures to prevent future collapses spreading through the entire economy. Glattfelder says we may need global anti-trust rules, which now exist only at national level, to limit over-connection among TNCs. Bar-Yam says the analysis suggests one possible solution: firms should be taxed for excess interconnectivity to discourage this risk. One thing won’t chime with some of the protesters’ claims: the super-entity is unlikely to be the intentional result of a conspiracy to rule the world. “Such structures are common in nature,” says Sugihara.

Newcomers to any network connect preferentially to highly connected members. TNCs buy shares in each other for business reasons, not for world domination. If connectedness clusters, so does wealth, says Dan Braha of NECSI: in similar models, money flows towards the most highly connected members. The Zurich study, says Sugihara, “is strong evidence that simple rules governing TNCs give rise spontaneously to highly connected groups”. Or as Braha puts it: “The Occupy Wall Street claim that 1 per cent of people have most of the wealth reflects a logical phase of the self-organising economy.” So, the super-entity may not result from conspiracy. The real question, says the Zurich team, is whether it can exert concerted political power. Driffill feels 147 is too many to sustain collusion. Braha suspects they will compete in the market but act together on common interests. Resisting changes to the network structure may be one such common interest.

The top 50 of the 147 superconnected companies
1. Barclays plc
2. Capital Group Companies Inc
3. FMR Corporation
4. AXA
5. State Street Corporation
6. JP Morgan Chase & Co
7. Legal & General Group plc
8. Vanguard Group Inc
9. UBS AG
10. Merrill Lynch & Co Inc
11. Wellington Management Co LLP
12. Deutsche Bank AG
13. Franklin Resources Inc
14. Credit Suisse Group
15. Walton Enterprises LLC
16. Bank of New York Mellon Corp
17. Natixis
18. Goldman Sachs Group Inc
19. T Rowe Price Group Inc
20. Legg Mason Inc
21. Morgan Stanley
22. Mitsubishi UFJ Financial Group Inc
23. Northern Trust Corporation
24. Société Générale
25. Bank of America Corporation
26. Lloyds TSB Group plc
27. Invesco plc
28. Allianz SE 29. TIAA
30. Old Mutual Public Limited Company
31. Aviva plc
32. Schroders plc
33. Dodge & Cox
34. Lehman Brothers Holdings Inc*
35. Sun Life Financial Inc
36. Standard Life plc
37. CNCE
38. Nomura Holdings Inc
39. The Depository Trust Company
40. Massachusetts Mutual Life Insurance
41. ING Groep NV
42. Brandes Investment Partners LP
43. Unicredito Italiano SPA
44. Deposit Insurance Corporation of Japan
45. Vereniging Aegon
46. BNP Paribas
47. Affiliated Managers Group Inc
48. Resona Holdings Inc
49. Capital Group International Inc
50. China Petrochemical Group Company

* Lehman still existed in the 2007 dataset used

http://blogs.scientificamerican.com/observations/2011/08/08/ownership-ties-among-global-corporations-strangely-resemble-a-bow-tie/
Ownership Ties Among Global Corporations Strangely Resemble a Bow Tie
by Sophie Bushwick / August 8, 2011

Large international corporations can control a wide variety of smaller companies. For example, Scientific American is a publication of Nature Publishing Group, which is a subsidiary of the Georg Von Holtzbrinck Publishing Group in Germany. This group also owns a number of other publishers in the U.S., United Kingdom, and Germany, a pyramid that includes American suspense thrillers, British textbooks, a German weekly newspaper and more. But corporate pyramids like that of the Von Holtzbrinck Publishing Group do not stand alone: The web of relationships among companies is tangled and complex, as a July 28 paper published to pre-print blogarXiv.org reveals.

A team of ETH Zurich (Swiss Federal Institute of Technology Zurich) researchers used a network model to map the ownership relations among more than 43,000 transnational corporations, which do not identify themselves with one country but rather use a global perspective and employ an international roster of executives. Owning shares in a company grants the owner some direct control of that entity, and indirect control of any companies in the parent-company’s pyramid. By treating each major corporation as a node and drawing links between companies that owned shares of others, the researchers uncovered the tendrils of control that link one pyramid to another.

The links between nodes, shown above, represent influence that can flow two ways: any corporation could either influence or be influenced by any other corporation. Directly owning shares of a company gave a corporation more influence than indirect ownership, and the researchers assigned their links certain weights to reflect this difference. At first glance, the picture that emerged looks quite convoluted. However, the researchers discovered that the web of connections clustered into four different components that took the shape of a bow tie. In the illustration, red dots represent nodes, green arrows point from share-owner to the owned company, and the flow of control points in the direction of the most power.

The researchers observed a central cluster in which influence goes both ways between all the nodes, called the strongly connected component, or SCC, as shown above. Within the SCC, each member either directly or indirectly owns some of every other member’s shares. Second, there was the in group, companies that owned shares in various members of the SCC, but were not under the SCC’s influence: Influence “flowed” in but not out. Part three was the in-group’s opposite, the companies who were influenced by, but did not own shares in, the SCC companies—this became the out group. Finally, the fourth component of the network consists of the tubes and tendrils, or T&T, companies that remain separate from the SCC but may have ties to members of the in or out groups. The above illustration actually represents a generic version of a bow tie network, a category of network that can also be used to describe how Web pages are related. The researchers found that the corporate network looked more like the illustration below, which shows that the out group is much larger than the in group or even the SCC.

Only the tiny, elite in group gets to influence the SCC core without submitting to its influence at all. A significant amount of the corporations, however, still fall into the central strongly connected component, which indicates that many of the major market players have complex economic relationships with one another. “What are the implications for global financial stability?” said the researchers in their paper. “What are the implications for market competition?” The study may not have uncovered a corporate conspiracy, but it does show that corporations are not lone behemoths: They are inter-dependent and influence one another a great deal. Applying a scientific model to the market can help provide a clearer picture of how the world economy runs. And perhaps a hint at what our corporate overlords are wearing.

Image credit: Stefano Battiston et al., ETH Zurich (Swiss Federal Institute of Technology Zurich)

WAIT WHAT DO THEY DO for MONEY?
http://www.newdeal20.org/2011/10/14/who-are-the-1-and-what-do-they-do-for-a-living-61759/
Who are the 1% and What Do They Do for a Living?
by Mike Konczal / 10/14/2011
There’s good reason to focus on the top 1%: they’re distorting our economy.

A lot of emphasis is on the “99%” versus the “1%” in these protests. But who are the 1% and what do they do for a living? Are they all Wilt Chamberlains and Oprahs and other people taking part in the dynamism of the new economy? Nope. It’s same as it ever was — high-level management and the financial sector. Suzy Khimm goes through the numbers here. I’m curious about occupations. I’ll hand the mic off to “Jobs and Income Growth of Top Earners and the Causes of Changing Income Inequality: Evidence from U.S. Tax Return Data“ by Bakija, Cole, and Heim. This is the latest and greatest report on occupations and inequality. Here’s a chart of the occupations of the top 1%:

distribution_1_percent

Inequality has fractals. Let’s go into the top 0.1% — what do they look like?  Here’s the chart of the occupations of the top 0.1%, including capital gains:

It boils down to managers, executives, and people who work in finance. From the paper: “[o]ur findings suggest that the incomes of executives, managers, supervisors, and financial professionals can account for 60 percent of the increase in the share of national income going to the top percentile of the income distribution between 1979 and 2005.”

For fun, there are more than twice as many people listed as “Not working or deceased” than are in “arts, media, sports.” For every elite sports player who earned a place at the top of the income pyramid due to technology changes and superstar, tournament-style labor markets that broadcast him across the globe, there are two trust fund babies.

The top 1% of managers and executives often means C-level employees, especially CEOs. And their earnings versus the average worker have skyrocketed in the past 30 years, so this shouldn’t be surprising:

 

snap20060621

How has this evolved over time?  Can we get a cross-section of that protest sign above?

Same candidates. There’s a reason the protests ended up on Wall Street: The top 1% and top 0.1% comprises all the senior bosses and the financial sector. One of the best things about Occupy Wall Street is that there is no chatter about Obama or Perry or whatever is the electoral political issue of the day. There are a lot of people rethinking things, discussing, learning, and conceptualizing the kinds of world they want to create. Since so much about inequality is a function of the legal structure known as a “corporation,” I’d encourage you to check out Alex Gourevitch on how the corporate is structured in our laws.

The paper notes that stock market returns drive much of the manager’s income. This is related to a process of financialization, something JW Mason has done a fantastic job outlining here. The “dominant ethos among managers today is that a business exists only to enrich its shareholders, including, of course, senior managers themselves,” and this is done by paying out more in dividends that is earned in profits. Think of it as our-real-economy-as-ATM-machine, cashing out wealth during the good times and then leaving workers and the rest of the real economy to deal with the aftermath.

Both articles mention chapter 6 of Doug Henwood’s Wall Street; anyone interested in how things have changed and where they need to go would be wise to check it out. It’s even available for free pdf book download here.

There’s good reason to focus on the top 1% instead of the top 10 or 50%. There is evidence that financial pay at this elite level is correlated with deregulation and the other legal changes that brought on the crisis. High-ranking senior corporate executives’ pay has dwarfed workers’ salaries, but is only a reward for engaging in shady financial engineering practices. These problems require a legal solution and thus they require a democratic challenge and a rethinking of how we want to structure our economy. Here’s to the 99% and Occupy Wall Street helping get us there.

{Mike Konczal is a Fellow at the Roosevelt Institute.}

BLACKROCK
http://www2.blackrock.com/global/home/AboutUs/History/index.htm

STATE STREET
http://www.statestreet.com/wps/portal/internet/corporate/home/aboutstatestreet/corporateoverview/history/!ut/p/c4/04_SB8K8xLLM9MSSzPy8xBz9CP0os3i_0CADCydDRwP_IGdnA08Tc38fINvY3dFEPzg1Lz40WL8g21ERABezIio!/

VANGUARD
https://personal.vanguard.com/us/content/Home/WhyVanguard/AboutVanguardWhoWeAreContent.jsp

FIDELITY
http://jobs.fidelity.com/ourculture/ourvalues/ourvalue_fidvalue.shtml

FOUR COMPANIES RUN EVERYTHING
http://english.pravda.ru/business/finance/18-10-2011/119355-The_Large_Families_that_rule_the_world-0/
The Large Families that rule the world / 18.10.2011

We are speaking of 6, 8 or maybe 12 families who truly dominate the world. Know that it is a mystery difficult to unravel. But what are the names of the families who run the world and have control of states and international organizations like the UN, NATO or the IMF?

To try to answer this question, we can start with the easiest: inventory, the world’s largest banks, and see who the shareholders are and who make the decisions. The world’s largest companies are now: Bank of America, JP Morgan, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley. Let us now review who their shareholders are.

Bank of America:
State Street Corporation, Vanguard Group, BlackRock, FMR (Fidelity), Paulson, JP Morgan, T. Rowe, Capital World Investors, AXA, Bank of NY, Mellon.

JP Morgan:
State Street Corp., Vanguard Group, FMR, BlackRock, T. Rowe, AXA, Capital World Investor, Capital Research Global Investor, Northern Trust Corp. and Bank of Mellon.

Citigroup:
State Street Corporation, Vanguard Group, BlackRock, Paulson, FMR, Capital World Investor, JP Morgan, Northern Trust Corporation, Fairhome Capital Mgmt and Bank of NY Mellon.

Wells Fargo:
Berkshire Hathaway, FMR, State Street, Vanguard Group, Capital World Investors, BlackRock, Wellington Mgmt, AXA, T. Rowe and Davis Selected Advisers.

We can see that now there appears to be a nucleus present in all banks: State Street Corporation, Vanguard Group, BlackRock and FMR (Fidelity). To avoid repeating them, we will now call them the “big four”

Goldman Sachs:
“The big four,” Wellington, Capital World Investors, AXA, Massachusetts Financial Service and T. Rowe.

Morgan Stanley:
“The big four,” Mitsubishi UFJ, Franklin Resources, AXA, T. Rowe, Bank of NY Mellon e Jennison Associates. Rowe, Bank of NY Mellon and Jennison Associates.

We can just about always verify the names of major shareholders. To go further, we can now try to find out the shareholders of these companies and shareholders of major banks worldwide.

Bank of NY Mellon:
Davis Selected, Massachusetts Financial Services, Capital Research Global Investor, Dodge, Cox, Southeatern Asset Mgmt. and … “The big four.”

State Street Corporation (one of the “big four”):
Massachusetts Financial Services, Capital Research Global Investor, Barrow Hanley, GE, Putnam Investment and … The “big four” (shareholders themselves!).

BlackRock (another of the “big four”):
PNC, Barclays e CIC.

Who is behind the PNC? FMR (Fidelity), BlackRock, State Street, etc. And behind Barclays? BlackRock

And we could go on for hours, passing by tax havens in the Cayman Islands, Monaco or the legal domicile of Shell companies in Liechtenstein. A network where companies are always the same, but never a name of a family.

In short: the eight largest U.S. financial companies (JP Morgan, Wells Fargo, Bank of America, Citigroup, Goldman Sachs, U.S. Bancorp, Bank of New York Mellon and Morgan Stanley) are 100% controlled by ten shareholders and we have four companies always present in all decisions: BlackRock, State Street, Vanguard and Fidelity.

In addition, the Federal Reserve is comprised of 12 banks, represented by a board of seven people, which comprises representatives of the “big four,” which in turn are present in all other entities.

In short, the Federal Reserve is controlled by four large private companies: BlackRock, State Street, Vanguard and Fidelity. These companies control U.S. monetary policy (and world) without any control or “democratic” choice. These companies launched and participated in the current worldwide economic crisis and managed to become even more enriched.

To finish, a look at some of the companies controlled by this “big four” group:
Alcoa Inc.
Altria Group Inc.
American International Group Inc.
AT&T Inc.
Boeing Co.
Caterpillar Inc.
Coca-Cola Co.
DuPont & Co.
Exxon Mobil Corp.
General Electric Co.
General Motors Corporation
Hewlett-Packard Co.
Home Depot Inc.
Honeywell International Inc.
Intel Corp.
International Business Machines Corp
Johnson & Johnson
JP Morgan Chase & Co.
McDonald’s Corp.
Merck & Co. Inc.
Microsoft Corp.
3M Co.
Pfizer Inc.
Procter & Gamble Co.
United Technologies Corp.
Verizon Communications Inc.
Wal-Mart Stores Inc.
Time Warner
Walt Disney
Viacom
Rupert Murdoch’s News Corporation.,
CBS Corporation
NBC Universal

The same “big four” control the vast majority of European companies counted on the stock exchange. In addition, all these people run the large financial institutions, such as the IMF, the European Central Bank or the World Bank, and were “trained” and remain “employees” of the “big four” that formed them. The names of the families that control the “big four”, never appear.

{Translated from the Portuguese version by Lisa Karpova / Pravda.Ru}