Media-Financial Complex

CNBC decided to respond to the righteous Jon Stewart rant against them on a Friday so he couldn't talk about it on that night's show. Their claim is that Stewart is "bizarrely obsessed" with their network, and Stewart was repeatedly calling Rick Santelli to come on the show. That's, um, called BOOKING A GUEST. Maybe CNBC doesn't do much of that, they just have a "CEO room" in Manhattan and just put the camera on whoever shows up there. It's not like they ask much of a variance of questions: "How great is your company doing? Is it awesome to be rich?"

Meanwhile, the network and other right-wing market populists continue to push the idea that Obama is responsible for the Dow's fall since Inauguration Day. I guess the business climate and the job loss has nothing to do with it.

The argument that Obama is somehow responsible for the collapse of Wall Street is absurd. First, every major policy that led to this collapse occurred under George W.'s watch (or, more accurately, his failure to watch). The housing and financial bubbles were created under Bush and exploded under Bush. The stock market began to collapse under Bush.

Second, it's inevitable that stocks, led by the bloated financial sector, would lose their remaining hot air as the new administration begins "stress-testing" the big banks, many of which are technically insolvent. After all, their share prices were built on a tissue of lies and dreams. Other sectors whose values were similarly distorted and distended by years of financial deception and regulatory disregard, such as housing and insurance, will also have to return to the real world before they can recover. Which could mean more stock losses.

Finally, none of the financial wizards who are now charging Obama with leading America into the abyss have offered an alternative plan for getting us out of the mess that, not incidentally, many of these same wizards happily led us into. For years, the Wall Street Journal editorial page and the financial gurus of cable news cheered as Wall Street leveraged its way into oblivion.

Obviously, Wall Street rage is aimed at getting the biggest banks paid off and the shareholders made whole so that only taxpayers will bear the burden of the collapse. There may be a very good reason, however, for outlets like CNBC, in particular Jim Cramer, to claim that Obama is responsible for the fall of the market. It deflects the blame from themselves. The story of Deep Capture is epic and needs to be read in full by the investigators who followed it for years to really understand. But TocqueDeville at Daily Kos does a pretty decent summarizing job.

This rabbit hole involves the thugs surrounding Jim Cramer and some of the top financial "journalists" from the New York Times, WSJ, Fortune magazine and BusinessWeek, top hedge funds, the Mafia, and the DTCC. It also includes "blackmail, smear campaigns, espionage, fraud, harassment, extortion, bribery, rumor-mongering, sabotage, off-shore money laundering, political cronyism, frivolous lawsuits, witness tampering, biased financial research, false identities, bogus credit ratings, bribery, libelous blogs, bad science, forgery, wiretapping, counterfeiting, collusion, lying, cheating, threats and theft."

And if that wasn't fun enough, it may be the underlying story of what collapsed the entire, global banking system or at least served as the catalyst for the collapse.

We're talking about financial journalists using the power of their megaphone to trash a stock, or even tout it at the last minute, and then, through naked short-selling, earn millions while destroying public companies. And Jim Cramer is perhaps the greatest offender.

I have analyzed well over a thousand stories written by this clique of journalists. The vast majority of them were sourced from a small group of short-sellers who are also friends of Cramer. Other popular sources for this group of journalists include convicted felons, mobsters, dubious private investigators, crooked lawyers, hired stock bashers, and gun-toting goons - most of whom are tied to the Cramer constellation of short-sellers.

Some of the stories written by these reporters are accurate enough. But many are not. The journalists misconstrue data with seemingly purposeful intent. They exaggerate and obfuscate. They publish innuendo or merely repeat, Deus Optimus Maximus, the words of their hedge fund and criminal friends. A single negative story by one of these reporter-thugs can send a company’s stock tumbling by more than 50% — pure profit for their hedge fund sources, who of course sell the company short (often right before the articles are published). Meanwhile, an overwhelming majority of the companies targeted by these journalists will also be the victims of phantom stock selling and other shenanigans. The journalists do not mention this in their stories, and in fact go out of their way to deny that phantom stock exists.

Anyone who says otherwise is subjected to a vicious media smear.

It doesn't take much these days to persuade you that anyone on Wall Street is a crook. But Mark Mitchell had the goods. Cramer understood the value of information, like any inside trader. Then he got the power, through his own TV show, to control that information. And the method that Cramer and his cronies apparently preferred, naked short-selling, has been brought up as a possible culprit in the fall of Bear Stearns. Sen. Jon Tester even brought it up in a hearing with then-SEC chair Christopher Cox in April 2008.

This financial meltdown isn't entirely due to the people who made money on the way down. But the corroded relationship between the Masters of the Universe and the subjects who cover them - the Media-Financial Complex - is absolutely a part of this tale. And the phantom stock - invented wealth that can appear and disappear - is just another of the exotic financial instruments created by people who push paper and add zeroes to their balance sheets and call it work, paper and securities that are then leveraged and bet upon and sliced and diced until nobody understands them and just doesn't want to get left holding them when the organ stops playing and the big dance ends.

Read the story of Deep Capture. It's a through-the-looking-glass experience. Anyway, I can think of a guest for Stewart's next show...

Non-Scary Cramer

Jim Cramer, in line to be Robert Gibbs' latest punching bag, is dutifully fulfilling his role as Wall Street's chief media embed by calling Barack Obama a "Bolshevik" who is "taking cues from Lenin". Earlier he called Obama's agenda "the most, greatest wealth destructive I've seen by a president."

John Cole has the exact right response.



"Bear Stearns is fine!!!!"

Don't be silly, indeed, Jim. Does CNBC have any non-shills around? I know, stupid question, simple answer, etc.

Don't Call It A Bailout

Just a helpful action that will cost taxpayers $25 billion dollars.

July 22 (Bloomberg) -- Treasury Secretary Henry Paulson's rescue package for Fannie Mae and Freddie Mac will probably cost $25 billion, the Congressional Budget Office said.

"There is a significant chance -- probably better than 50 percent -- that the proposed new Treasury authority would not be used before it expired at the end of December 2009,'' the nonpartisan agency, which provides economic and budget analysis for lawmakers, said in a report today.

I don't have a complete problem with a bailout that helps shield homeowners from foreclosure. A bailout that shields investors and executives from the consequences of their decisions is the problem.

On a related note, this is a very interesting speculative article about that other recipient of a federal bailout, Bear Stearns. I'm not sure I totally buy this, but there's an implication that the firm fell victim to a surge of short-sellers that drove their stock price into oblivion. The larger point here is that the financial business is so complicated that this becomes plausible, and the ostensible reason for the attack was that Bear was keeping above water in the credit crunch, so it all goes back to the same source.

Wherein I Hate On Democrats

Now, I think the fundamentals are still very positive for a Democratic victory in November, and probably a significant one. Just like how Barack Obama never really topped 45% in Pennsylvania in any poll, and that was where he ended up, John McCain has similarly not topped 45% in any poll, and that appears to be close to his ceiling.

However, Democrats have a lot of opportunities for self-inflicted wounds (outside of intra-party warfare that goes all the way to the convention), and in general they should stay away from those pitfalls. Let me enumerate:

• Apparently both Sen. Obama and Sen. Clinton are pushing a bogus piece of science that suggests that autism is related to vaccinations. That not only is wrong, it has the potential to create a serious public health problem. Vaccinations save lives. They need to stop this silliness and not use their podium and their power to spout bad science. It's disheartening to those who believe science will make a comeback with a new President.

• Al Gore needs to move beyond praising legislators just for paying lip service to the fight against global warming. That's something you could afford to do 2 or 3 years ago. The consensus is further along now, and so is the sense of urgency. John McCain's climate proposals are woefully insufficient, the product of bad "bipartisanship" which posits that the midpoint of any two perspectives must be the best policy, when actually it would be a handout to corporate polluters and a walk away from solving the problem. Gore needs to do more than just pat people on the head, but advocate strongly in the policy arena.

• While Charles Gibson asked a B.S. question about capital gains taxes that relied on an artifact to make its point (it's a long story, but basically people hold back selling stock when they find out there would be a cut in the tax rate on capital gains, leading to a SHORT-TERM increase in revenue that doesn't sustain over the life of the cut), both Democrats kind of agreed with him because they don't think Americans can handle the truth about taxes.

This gets to a generalized problem in Democratic tax talk, which is that they're very unwilling to talk about taxes in terms of value. There are lots of government services which are actually a good deal for middle income families and should be sold as something that Americans would be wise to invest in. But rather than making a positive case around awesome stuff we're going to get, Democrats talk about taxes in complete isolation from the things that taxes buy, and begin with the premise that they're so odious and painful that they should only be levied on folks too rich to notice.

That is the gospel's truth, and reframing the tax argument as the dues you pay for civil society is so urgently needed or else we'll always wind up back here.

• I'd have to see the numbers, but Paul Krugman is arguing that Obama's comment about bitter voters turning to social issues to base their choices when economic issues should drive things may be true (I think black voters may get included in Larry Bartels' sample and skew it). There's an affluent, aspirational, exurban community that is much more motivated by social issues because they have the luxury to do so. However, those are the voters feeling most squeezed by the housing crisis, so we can actually put this to the test in November.

• Democratic silence in the Congress over the bailout of large investment banks is quite disturbing. This is corporate welfare at its most brazen.

It is remarkable that only a right-winger like Will seems upset about the Fed giving taxpayers' money to the very richest people in the country with no strings attached. This makes the battles over programs like the State Children's Health Insurance Program look like silly charades. If the government can cough up uncounted billions for the country's richest people when they get themselves in trouble due to their own stupidity, with no questions asked, isn't absurd that we must have a huge fight over getting $7 billion a year to extend health insurance to kids?

• Finally, whoever said this is not paying enough attention:

There is much speculation that the Democrats will run Mr. Lieberman out of their caucus (he now sits with Democrats and votes with them on most issues not related to the war) if they widen their margin in the Senate after the November elections. But Harry Reid of Nevada, the Senate Democratic leader, has pledged that he would not disown Mr. Lieberman under those circumstances and said he considered him a good friend.

A member of the Senate Democratic leadership, who insisted on not being identified, said: “The bloggers want us to get rid of him. It ain’t happening.” He added: “We need every vote. He’s with us on everything but the war.”

That's not true, actually. He's been dead weight on the Government Affairs committee, and on an array of national security issues he votes with Republicans. And he's endorsed the opposing candidate for President, which is really the last straw and grounds for dismissal. It's disqualifying.

Democrats broadly need to get better on all of these things. It's still a long road.

Too Big To Let Fail

So the Treasury Secretary called for a "sweeping overhaul" of financial rules, and the cheerleaders on the business channels are predictably calling this some kind of radical change, whereas Paul Krugman sees this as rearranging deck chairs.

Anyone who has worked in a large organization — or, for that matter, reads the comic strip “Dilbert” — is familiar with the “org chart” strategy. To hide their lack of any actual ideas about what to do, managers sometimes make a big show of rearranging the boxes and lines that say who reports to whom.

You now understand the principle behind the Bush administration’s new proposal for financial reform, which will be formally announced today: it’s all about creating the appearance of responding to the current crisis, without actually doing anything substantive.

I think what we've seen is the belief in deregulation of financial markets and massive corporate consolidation in general working in tandem. This created huge financial institutions like Bear Stearns, which them became too big to allow to fail no matter how speculative they became. And so they could engage in whatever risky operations they wished, full with the knowledge that they would never experience a full washout of their assets. The result is a safety net for massive corporations only at the expense of the social safety net for individuals.

Without a vote of the Congress or a public debate, the Bush administration and the Federal Reserve have made government the guarantor of the shadow banking system – the unregulated, unhinged hedge funds and investment houses whose compulsive excesses now threaten the global economy. They say necessity is the mother of invention, but we seen only a part of the new machine, not surprisingly, the part that buttresses Wall Street. They have scrambled to put this together in an emergency, behind closed doors, without a hint of the necessary regulatory changes that must rationally accompany such guarantees. That is what the fight in the coming months will surely be about [...] The shadow banking system now must be brought out of the shadows. After all we are constantly told that finance serves the economy, and the market system is the best means to solve our social goals. It feels very uncomfortable when our servant's servant becomes our master's master as Wall Street has been permitted to become in America in recent years by contribution- hungry elected officials.

Barack Obama explicitly connected the current crisis to the bipartisan practice of deregulation. This is a culture of laissez-faire economics that has shifted risk to individuals and removed risk from corporations, and Obama's speech talked about the need to radically change that midset with actual regulation instead of putting new names on the same old ineffective regulatory agencies. Corporations for too long have, as Bob Borosage said, been given "the freedom to gamble with other peoples’ money ... protected by lavish campaign contributions and powerful lobbies." To avoid a total revolt from individuals fed up with being used as pawns in a game played by financial institutions, and to restore some balance and fairness to the macro-economy, we have to address this seriously.

One thing I do know is that John "Let's Schedule A Meeting Sometime" McCain would offer the same foot-dragging and obfuscation that has brought us to the current crisis. After all, some top campaign advisors of his lobbied for the shady lender Ameriquest, one of his top surrogates Carly Fiorina is a welfare queen whose company paid off her mortgage between 1999 and 2003, the most recent RNC chair is saying that his non-plan to deal with the mortgage crisis is incomplete, and his top economic advisor is perhaps most responsible for the crisis itself:

The general co-chairman of John McCain’s presidential campaign, former Sen. Phil Gramm (R-Texas), led the charge in 1999 to repeal a Depression-era banking regulation law that Democrat Barack Obama claimed on Thursday contributed significantly to today’s economic turmoil.

“A regulatory structure set up for banks in the 1930s needed to change because the nature of business had changed,” the Illinois senator running for president said in a New York economic speech. “But by the time [it] was repealed in 1999, the $300 million lobbying effort that drove deregulation was more about facilitating mergers than creating an efficient regulatory framework.”

Gramm’s role in the swift and dramatic recent restructuring of the nation’s investment houses and practices didn’t stop there.

A year after the Gramm-Leach-Bliley Act repealed the old regulations, Swiss Bank UBS gobbled up brokerage house Paine Weber. Two years later, Gramm settled in as a vice chairman of UBS’s new investment banking arm.

Later, he became a major player in its government affairs operation. According to federal lobbying disclosure records, Gramm lobbied Congress, the Federal Reserve and the Treasury Department about banking and mortgage issues in 2005 and 2006.

During those years, the mortgage industry pressed Congress to roll back strong state rules that sought to stem the rise of predatory tactics used by lenders and brokers to place homeowners in high-cost mortgages.

For his work, Gramm and two other lobbyists collected $750,000 in fees from UBS’s American subsidiary. In the past year, UBS has written down more than $18 billion in exposure to subprime loans and other risky securities and is considering cutting as many as 8,000 jobs.

It's so clear that lack of regulation gave the investment banks a license to steal, and that Phil Gramm and his puppet Presidential candidate, who doesn't know or care about the economy, want the theft to continue.

Corporate Welfare

E.J. Dionne finally says it:

Never do I want to hear again from my conservative friends about how brilliant capitalists are, how much they deserve their seven-figure salaries and how government should keep its hands off the private economy.

The Wall Street titans have turned into a bunch of welfare clients. They are desperate to be bailed out by government from their own incompetence, and from the deregulatory regime for which they lobbied so hard. They have lost "confidence" in each other, you see, because none of these oh-so-wise captains of the universe have any idea what kinds of devalued securities sit in one another's portfolios.

So they have stopped investing. The biggest, most respected investment firms threaten to come crashing down. You can't have that. It's just fine to make it harder for the average Joe to file for bankruptcy, as did that wretched bankruptcy bill passed by Congress in 2005 at the request of the credit card industry. But the big guys are "too big to fail," because they could bring us all down with them.

Enter the federal government, the institution to which the wealthy are not supposed to pay capital gains or inheritance taxes. Good God, you don't expect these people to trade in their BMWs for Saturns, do you?

This is so overdue. We've essentially in the Bush era set up a kind of corporate Marxism, where risk is socialized, but where wealth is privatized. And the middle class, in this case homeowners, are the only ones who feel any pain.

Ben Bernanke believes that he can save the economy by managing and financing the ultimate downfall of these financial institutions. Which is fine, because the alternative is a massive meltdown of the entire system. But let's call it exactly what it is. And let's no longer allow the other side to say things like "let the market make its own decisions," because they only believe that when they're not affected. This is a bailout, and it's government intervention into the markets to save them. Because they currently are non-functional and unregulated.

Honey I Broke The Economy

This Bear Stearns sale, for less than the COST OF THEIR OFFICE SPACE in Manhattan, is really ominous. This is Great Depression kind of stuff: a run on the bank, government intervention to prevent disaster, and a chief executive who is unconcerned of the consequences. Here's Bonddad.

-- For all practical purposes, Bear Stearns is bankrupt. Despite the shotgun nature of the Bear/JP Morgan deal, Bear would not have agreed to a $2/share valuation unless there the damage to their business was extremely severe.

-- JPM swooped in quickly on this deal. My guess is they have been watching this situation for some time and waited for the right moment to get this deal. All the players lined up too quickly in JPM's favor for this to be a happy coincidence. JPM sees a play here and went for it. This actually is good news. If there are other firms in financial straights right now, others know about it. The Fed has demonstrated they will help to finance the deal. In short, if another firm goes bankrupt it will be a quick procedure to deal with it.

-- The Federal Reserve is scared shitless. There is no reason for them to get involved in this deal unless they were worried about one of two things (and probably both): 1.) the ripple effect and/or 2.) other banks in a similar situation. The Fed is looking for any tool (and making some new ones up) to prevent a system wide crisis.

The Fed is also lowering its discount rate and setting itself up as a "lender of last resort" for government securities. There's great coverage on this all over the econosphere; Calculated Risk and others. Matt Stoller had the best summation of this entire mess.

For some time going forward, there's going to be lots of econo-speak about bail-outs and Federal Reserve tools to manage insolvent banks, but remember one basic fact. You can't run a political system and an economy based on loan-sharking, intimidation, and socialism for the rich and powerful. Now, that might sound like a screed, but it's not. I'm not just saying that the rich stealing from the public is a bad thing, I'm saying that it no longer works because there isn't enough left to steal such that the theft can be hidden. Our policy apparatus is falling apart when it has to resort to bribery and threats.

They've privatized wealth and socialized risk for too long, and relying on consumers to bail them out isn't going to work anymore. We're no longer the world's largest economy and as we contract and depress we risk becoming totally irrelevant. We're at the point where our economic leaders are openly talking about "restoring faith" in the economy, because faith, not fundamentals, is all we have left.

Hoard your money. We're in for a panic.