America's Ten Most Corrupt Capitalists By Zach Carter May 16, 2010 "Alternet" -- The financial crisis has unveiled

a new set of public villains corrupt corporate capitalists who leveraged their connections in government for their own personal profit. During the Clinton and Bush administrations, many of these schemers were worshiped as geniuses, heroes or icons of American progress. But today we know these opportunists for what they are: Deregulatory hacks hellbent on making a profit at any cost. Without further ado, here are the 10 most corrupt capitalists in the U.S. economy. 1. Robert Rubin Where to start with a man like Robert Rubin? A Goldman Sachs chairman who wormed his way into the Treasury Secretary post under President Bill Clinton, Rubin presided over one of the most radical deregulatory eras in the history of finance. Rubin's influence within the Democratic Party marked the final stage in the Democrats' transformation from the concerned citizens who fought Wall Street and won during the 1930s to a coalition of Republicanlite financial elites. Rubin's most stunning deregulatory accomplishment in office was also his greatest act of corruption. Rubin helped repeal GlassSteagall, the Depression-era law that banned economically essential banks from gambling with taxpayer money in the securities markets. In 1998, Citibank inked a merger with the Travelers Insurance group. The deal was illegal under GlassSteagall, but with Rubin's help, the law was repealed in 1999, and the Citi-Travelers merger approved, creating too-big-to-fail behemoth Citigroup. That same year, Rubin left the government to work for Citi, where he made $120 million as the company piled up risk after crazy risk. In 2008, the company collapsed spectacularly, necessitating a $45 billion direct government bailout, and hundreds of billions more in other government guarantees. Rubin is now attempting to rebuild his disgraced public image by warning about the dangers of government spending and Social Security. Bob, if you're worried about the deficit, the problem isn't old people trying to get by, it's corrupt bankers running amok.

2. Alan Greenspan The officially apolitical, independent Federal Reserve chairman backed all of Rubin's favorite deregulatory plans, and helped crush an effort by Brooksley Born to regulate derivatives in 1998, after the hedge fund Long-Term Capital Management went bust. By the time Greenspan left office in 2006, the derivatives market had ballooned into a multi-trillion dollar casino, and Greenspan wanted his cut. He took a job with bond kings PIMCO and then with the hedge fund Paulson & Co. yeah, that Paulson and Co., the one that colluded with Goldman Sachs to sabotage the company's own clients with unregulated derivatives. Incidentally, this isn't the first time Greenspan has been a close associate of alleged fraudsters. Back in the 1980s, Greenspan went to bat for politically connected Savings & Loan titan Charles Keating, urging regulators to exempt his bank from a key rule. Keating later went to jail for fraud, after, among other things, putting out a hit on regulator William Black. ("Get Black kill him dead.") Nice friends you've got, Alan. 3. Larry Summers During the 1990s, Larry Summers was a top Treasury official tasked with overseeing the economic rehabilitation ofRussia after the fall of the Soviet Union. This project, was, of course, a complete disaster that resulted in decades of horrific poverty. But that didn't stop top advisers to the program, notably Harvard economist Andrei Shleifer, from getting massively rich by investing his own money in Russian projects while advising both the Treasury and the Russian government. This is called "fraud," and a federal judge slapped both Shleifer and Harvard itself with hefty fines for their looting of the Russian economy. But somehow, after defrauding two governments while working for Summers, Shleifer managed to keep his job at Harvard, even after courts ruled against him. That's because after the Clinton administration, Summers became president of Harvard, where he protected Shleifer. This wasn't the only crazy thing Summers did at Harvard he also ran the school like a giant hedge fund, which went very well until markets crashed in 2008. By then, of course, Summers had left Harvard for a real hedge fund, D.E. Shaw, where he raked in $5.2 million working part-time. The next year, he joined the the Obama

administration as the president's top economic adviser. Interestingly, the Wall Street reform bill currently circulating through Congressessentially leaves hedge funds untouched. 4. Phil and Wendy Gramm Summers, Rubin and Greenspan weren't the only people who thought it was a good idea to let banks gamble in the derivatives casinos. In 2000, Republican Senator from Texas Phil Gramm pushed through the Commodity Futures Modernization Act, which not only banned federal regulation of these toxic poker chips, it also banned states from enforcing anti-gambling laws against derivatives trading. The bill was lobbied for heavily by energy/finance hybrid Enron, which would later implode under fraudulent derivatives trades. In 2000, when Phil Gramm pushed the bill through, his wife Wendy Gramm was serving on Enron's board of directors, where she made millions before the company went belly-up. When Phil Gramm left the Senate, he took a job peddling political influence at Swiss banking giant UBS as vice chairman. Since Gramm's arrival, UBS has been embroiled in just about every scandal you can think of, from securities fraud to tax fraud to diamond smuggling. Interestingly, both UBS shareholders and their executives have gotten off rather lightly for these acts. The only person jailed thus far has been the tax fraud whistleblower. Looks like Phil's earning his keep. 5. Jamie Dimon J.P. Morgan Chase CEO Jamie Dimon has done a lot of scummy things as head of one of the world's most powerful banks, but his most grotesque act of corruption actually took place at the Federal Reserve. At each of the Fed's 12 regional offices, the board of directors is staffed by officials from the region's top banks. So while it's certainly galling that the CEO of J.P. Morgan would be on the board of the New York Fed, one of J.P. Morgan's regulators, it's not all that uncommon. But it is quite uncommon for a banker to be negotiating a bailout package for his bank with the New York Fed, while simultaneously serving on the New York Fed board. That's what happened in March 2008, when J.P. Morgan agreed to buy up Bear Stearns, on the condition that the Fed kick in $29 billion to cushion the company from any losses. Dimon-- CEO of J.P. Morgan and board

member of the New York Fed-- was negotiating with Timothy Geithner, who was president of the New York Fed-- about how much money the New York Fed was going to give J.P. Morgan. On Wall Street, that's called being a savvy businessman. Everywhere else, it's called a conflict of interest. 6. Stephen Friedman The New York Fed is just full of corruption. Consider the case of Stephen Friedman (expertly presented by Greg Kaufmann for the Nation). As the financial crisis exploded in the fall of 2008, Friedman was serving both as chairman of the New York Fed and on the board of directors at Goldman Sachs. The Fed stepped in to prevent AIG from collapsing in September 2008, and by November, the New York Fed had decided to pay all of AIG's counterparties 100 cents on the dollar for AIG's bets even though these companies would have taken dramatic losses in bankruptcy. The public wouldn't learn which banks received this money until March 2009, but Friedman bought 52,600 shares of Goldman stock in December 2008 and January 2009, more than doubling his holdings. As it turns out, Goldman was the top beneficiary of the AIG bailout, to the tune of $12.9 billion. Friedman made millions on the Goldman stock purchase, and is yet to disclose what he knew about where the AIG money was going, or when he knew it. Either way, it's pretty bad if he knew Goldman benefited from the bailout, then he belongs in jail. If he didn't know, then what exactly was he doing as chairman of the New York Fed, or on Goldman's board? 7. Robert Steel Like better-known corruptocrats Robert Rubin and Henry Paulson, Steel joined the Treasury after spending several years as a top executive with Goldman Sachs. Steel joined the Treasury in 2006 as Under Secretary for Domestic Finance, and proceeded to do, well, nothing much until financial markets went into free-fall in 2008. When Wachovia ousted CEO Ken Thompson, the company named Steel as its new CEO. Steel promptly bought one million Wachovia shares to demonstrate his commitment to the firm, but by September, Wachovia was in dire straits. The FDIC wanted to put the company through receivership shutting it down and wiping out its shareholders.

But Steel's buddies at Treasury and the Fed intervened, and instead of closing Wachovia, they arranged a merger with Wells Fargo at $7 a share saving Steel himself $7 million. He now serves on Wells Fargo's board of directors. 8. Henry Paulson His time at Goldman Sachs made Henry Paulson one of the richest men in the world. Under Paulson's leadership, Goldman transformed from a private company ruled by client relationships into a public company operating as a giant global casino. As Treasury Secretary during the height of the financial crisis, Paulson personally approved a direct $10 billion capital injection into his former firm. But even before that bailout, Paulson had been playing fast and loose with ethics rules. In June 2008, Paulson held a secret meeting in Moscow with Goldman's board of directors, where they discussed economic prognostications, market conditions and Treasury rescue plans. Not okay, Hank. 9. Warren Buffett Warren Buffett used to be a reasonable guy, blasting the rich for waging "class warfare" against the rest of us and deriding derivatives as "financial weapons of mass destruction." These days, he's just another financier crony, lobbying Congress against Wall Street reform, and demanding a light touch on get this derivatives! Buffet even went so far as to buy the support of Sen. Ben Nelson, D-Nebraska, for a filibuster on reform. Buffett has also been an outspoken defender of Goldman Sachs against the recent SEC fraud allegations, allegations that stem from fancy products called "synthetic collateralized debt obligations" the financial weapons of mass destruction Buffett once criticized. See, it just so happens that both Buffet's reputation and his bottom line are tied to an investment he made in Goldman Sachs in 2008, when he put $10 billion of his money into the bank. Buffett has acknowledged that he only made the deal because he believed Goldman would be bailed out by the U.S. government. Which, in fact, turned out to be the case, multiple times. When the government rescued AIG, the $12.9 billion it funneled to Goldman was to coverderivatives bets Goldman had placed with the megainsurer. Buffett was right about derivatives they are WMD so far as the real economy is concerned. But they've enabled Warren

Buffett to get even richer with taxpayer help, and now he's fighting to make sure we don't shut down his own casino. 10. Goldman Sachs No company exemplifies the revolving door between Wall Street and Washington more than Goldman Sachs. The four people on this list are some of the worst offenders, but Goldman's D.C. army has includes many other top officials in this administration and the last. White House: Joshua Bolton, chief of staff for George W. Bush, was a Goldman man Regulators: Current New York Fed President William Dudley is a Goldman man Current Commodity Futures Trading Commission Chairman Gary Gensler has been a responsible regulator under Obama, but he was a deregulatory hawk during the Clinton years, and worked at Goldman for nearly two decades before that. A top aide to Timothy Geithner, Gene Sperling, is a Goldman man Current Treasury Undersecretary Robert Hormats is a Goldman man Current Treasury Chief of Staff Mark Patterson is a former Goldman lobbyist Former SEC Chairman Arthur Levitt is now a Goldman adviser Neel Kashkari, Henry Paulson's deputy on TARP, was a Goldman man COO of the SEC Enforcement Division Adam Storch is a Goldman man

Congress: Former Sen. John Corzine, D-N.J., was Goldman's CEO before Henry Paulson Rep. Jim Himes, D-Conn., was a Goldman Vice President before he ran for Congress Former House Minority Leader Dick Gephardt, D-Mo., now lobbies for Goldman And the list goes on. Zach Carter is an economics editor at AlterNet and a fellow at Campaign for America's Future. He writes a weekly blog on the economy for the Media Consortium and his work has appeared in the Nation, Mother Jones, the American Prospect and Salon. © 2010 Independent Media Institute. All rights reserved.

Computerized Front Running and Financial Fraud How a Computer Program Designed to Save the Free Market Turned Into a Monster

By Ellen Brown April 23, 2010 "Information Clearing House" -- While the SEC is busy investigating Goldman Sachs, it might want to look into another Goldman-dominated fraud: computerized front running using high-frequency trading programs. Market commentators are fond of talking about free market capitalism, but according to Wall Street commentator Max Keiser, it is no more. It has morphed into what his TV co-host Stacy Herbert calls rigged market capitalism : all markets today are subject to manipulation for private gain. Keiser isn t just speculating about this. He claims to have invented one of the most widely used programs for doing the rigging. Not that that s what he meant to invent. His patented program was designed to take the manipulation out of markets. It would do this by matching buyers with sellers automatically, eliminating front running brokers buying or selling ahead of large orders coming in from their clients. The computer program was intended to remove the conflict of interest that exists when brokers who match buyers with sellers are also selling from their own accounts. But the program fell into the wrong hands and became the prototype for automated trading programs that actually facilitate front running. Also called High Frequency Trading (HFT) or black box trading, automated program trading uses high-speed computers governed by complex algorithms (instructions to the computer) to analyze data and transact orders in massive quantities at very high speeds. Like the poker player peeking in a mirror to see his opponent s cards, HFT allows the program trader to peek at major incoming orders and jump in front of them to skim profits off the top. And these large institutional orders are our money -- our pension funds, mutual funds, and 401Ks. When market making (matching buyers with sellers) was done strictly by human brokers on the floor of the stock exchange, manipulations and front running were considered an acceptable (if morally dubious) price to pay for continuously liquid markets. But

front running by computer, using complex trading programs, is an entirely different species of fraud. A minor flaw in the system has morphed into a monster. Keiser maintains that computerized front running with HFT has become the principal business of Wall Street and the primary force driving most of the volume on exchanges, contributing not only to a large portion of trading profits but to the manipulation of markets for economic and political ends. The Virtual Specialist : the Prototype for High Frequency Trading Until recently, most market making was done by brokers called specialists, those people you see on the floor of the New York Stock Exchange haggling over the price of stocks. The job of the specialist originated over a century ago, when the need was recognized for a system for continuous trading. That meant trading even when there was no real buyer or seller waiting to take the other side of the trade. The specialist is a broker who deals in a specific stock and remains at one location on the floor holding an inventory of it. He posts the bid and ask prices, manages limit orders, executes trades, and is responsible for managing the uninterrupted flow of orders. If there is a large shift in demand on the buy side or the sell side, the specialist steps in and sells or buys out of his own inventory to meet the demand, until the gap has narrowed. This gives him an opportunity to trade for himself, using his inside knowledge to book a profit. That practice is frowned on by the Securities Exchange Commission (SEC), but it has never been seriously regulated, because it has been considered necessary to keep markets liquid. Keiser s Virtual Specialist Technology (VST) was developed for the Hollywood Stock Exchange (HSX), a web-based, multiplayer simulation in which players use virtual money to buy and sell shares of actors, directors, upcoming films, and film-related options. The program determines the true market price automatically, by comparing bids with asks and weighting the proportion of each. Keiser and HSX co-founder Michael Burns applied for a patent for a computer-implemented securities trading system with a virtual specialist function in 1996, and U.S. patent no. 5960176 was awarded in 1999. But things went awry after the crash, when Keiser s company HSX Holdings sold the VST patent to investment firm Cantor Fitzgerald, over his objection. Cantor Fitzgerald then put the part of the program that would have eliminated front-running

on ice, just as drug companies buy up competing patents in order to take them off the market. Instead of preventing front-running, the program was altered so that it actually enhanced that fraudulent practice. Keiser (who is now based in Europe) notes that this sort of patent abuse is illegal under European Intellectual Property law. Meanwhile, the design of the VST program remained on display at the patent office, giving other inventors ideas. To get a patent, applicants must list prior art and then prove that their patent is an improvement in some way. The listing for Keiser s patent shows that it has been referenced by 132 others involving automated program trading or HFT. Since then, HFT has quickly come to dominate the exchanges. High frequency trading firms now account for 73% of all U.S. equity trades, although they represent only 2% of the approximately 20,000 firms in operation. In 1998, the SEC allowed online electronic communication networks, or alternative trading systems, to become full-fledged stock exchanges. Alternative trading systems (ATS) are computerautomated order-matching systems that offer exchange-like trading opportunities at lower costs but are often subject to lower disclosure requirements and different trading rules. Computer systems automatically match buy and sell orders that were themselves submitted through computers. Market making that was once done with a specialist s book -- something that could be examined and audited -- is now done by an unseen, unaudited black box. For over a century, the stock market was a real market, with live traders hotly bidding against each other on the floor of the exchange. In only a decade, floor trading has been eliminated in all but the largest exchanges, such as the New York Stock Exchange (NYSE); and even in those markets, it now co-exists with electronic trading. Alternative trading systems allow just about any sizable trader to place orders directly in the market, rather than routing them through investment dealers on the NYSE. They also allow any sizable trader with a sophisticated HFT program to front run trades. Flash Trades: How the Game Is Rigged An integral component of computerized front running is a dubious practice called flash trades. Flash orders are permitted by a

regulatory loophole that allows exchanges to show orders t o some traders ahead of others for a fee. At one time, the NYSE allowed specialists to benefit from an advance look at incoming orders; but it has now replaced that practice with a level playing field policy that gives all investors equal access to all p rice quotes. Some ATSs, however, which are hotly competing with the established exchanges for business, have adopted the use of flash trades to pull trading business away from the exchanges. An incoming order is revealed (or flashed) to a trader for a fraction of a second before being sent to the national market system. If the trader can match the best bid or offer in the system, he can then pick up that order before the rest of the market sees it. The flash peek reveals the trade coming in but not the limit price the maximum price at which the buyer or seller is willing to trade. This is what the HFT program figures out, and it is what gives the high-frequency trader the same sort of inside information available to the traditional market maker: he now gets to peek at the other player s cards. That means high-frequency traders can do more than just skim hefty profits from other investors. They can actually manipulate markets. How this is done was explained by Karl Denninger in an insightful post on Seeking Alpha in July 2009: Let s say that there is a buyer willing to buy 100,000 shares of BRCM with a limit price of $26.40. That is, the buyer will accept any price up to $26.40. But the market at this particular moment in time is at $26.10, or thirty cents lower. So the computers, having detected via their flash orders (which ought to be illegal) that there is a desire for Broadcom shares, start to issue tiny (typically 100 share lots) immediate or cancel orders - IOCs - to sell at $26.20. If that order is eaten the computer then issues an order at $26.25, then $26.30, then $26.35, then $26.40. When it tries $26.45 it gets no bite and the order is immediately canceled. Now the flush of supply comes at, big coincidence, $26.39, and the claim is made that the market has become more efficient. Nonsense; there was no real seller at any of these prices! This pattern of offering was intended to do one and only one thing -manipulate the market by discovering what is supposed to be a hidden piece of information -- the other side s limit price! With normal order queues and flows the person with the limit order would see the offer at $26.20 and might drop his limit. But

the computers are so fast that unless you own one of the same speed you have no chance to do this -- your order is immediately raped at the full limit price! . . . [Y]ou got screwed for 29 cents per share which was quite literally stolen by the HFT firms that probed your book before you could detect the activity, determined your maximum price, and then sold to you as close to your maximum price as was possible. The ostensible justification for high-frequency programs is that they improve liquidity, but Denninger says, Hogwash. They have turned the market into a rigged game where institutional orders (that s you, Mr. and Mrs. Joe Public, when you buy or sell mutual funds!) are routinely screwed for the benefit of a few major international banks. In fact, high-frequency traders may be removing liquidity from the market. So argues John Daly in the U.K. Globe and Mail, citing Thomas Caldwell, CEO of Caldwell Securities Ltd.: Large institutional investors know that if they start trying to push through a large block of shares at a certain price even if the block is broken into many small trades on several ATSs and markets -- they can trigger a flood of high-frequency orders that immediately move market prices to the institution s disadvantage . . . . That s why institutions have flocked to so-called dark pools operated by ATSs such as Instinet, and individual dealers like Goldman Sachs. The pools allow traders to offer prices without publicly revealing their identities and tipping their hand. Because these large, dark pools are opaque to other investors and to regulators, they inhibit the free and fair trade that depends on open and transparent auction markets to work. The Notorious Market-Rigging Ringleader, Goldman Sachs Tyler Durden, writing on Zero Hedge, notes that the HFT game is dominated by Goldman Sachs, which he calls a hedge fund in all but FDIC backing. Goldman was an investment bank until the fall of 2008, when it became a commercial bank overnight in order to capitalize on federal bailout benefits, including virtually interestfree money from the Fed that it can use to speculate on the opaque ATS exchanges where markets are manipulated and controlled. Unlike the NYSE, which is open only from 10 am to 4 pm EST daily, ATSs trade around the clock; and they are particularly busy when the NYSE is closed, when stocks are thinly traded and easily manipulated. Tyler Durden writes:

[A]s the market keeps going up day in and day out, regardless of the deteriorating economic conditions, it is just these HFT s that determine the overall market direction, usually without fundamental or technical reason. And based on a few lines of code, retail investors get suckered into a rising market that has nothing to do with green shoots or some Chinese firms buying a few hundred extra Intel servers: HFTs are merely perpetuating the same ponzi market mythology last seen in the Madoff case, but on a massively larger scale. HFT rigging helps explain how Goldman Sachs earned at least $100 million per day from its trading division, day after day, on 116 out of 194 trading days through the end of September 2009. It s like taking candy from a baby, when you can see the other players cards. Reviving the Free Market So what can be done to restore free and fair markets? A step in the right direction would be to prohibit flash trades. The SEC is proposing such rules, but they haven t been effected yet. Another proposed check on HFT is a Tobin tax a very small tax on every financial trade. Proposals for the tax range from .005% to 1%, so small that it would hardly be felt by legitimate buy and hold investors, but high enough to kill HFT, which skims a very tiny profit from a huge number of trades. That is what proponents contend, but a tiny tax might not actually be enough to kill HFT. Consider Denninger s example, in which the high-frequency trader was making not just a few pennies but a full 29 cents per trade and had an opportunity to make this sum on 99,500 shares (100,000 shares less 5 100-lot trades at lesser sums). That s a $28,855 profit on a $2.63 million trade, not bad for a few milliseconds of work. Imposing a .1% Tobin tax on the $2.63 million would reduce the profit to $26,225, but that s still a nice return for a trade that takes less time than blinking. The ideal solution would fix the problem at its source -- the pricesetting mechanism itself. Keiser says this could be done by banning HFT and installing his VST computer program in its original design in all the exchanges. The true market price would then be established automatically, foreclosing both human and electronic manipulation. He notes that the shareholders of his former firm have a good claim for voiding out the sale to Cantor Fitzgerald and retrieving the program, since the deal was never

consummated and the investors in HSX Holdings have never received a penny for the sale. There is just one problem with their legal claim: the paperwork proving it was shipped to Cantor Fitzgerald s offices in the World Trade Center several months before September 2001. Like free market capitalism itself, it seems, the evidence has gone up in smoke. Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. InWeb of Debt, her latest of eleven books, she turns those skills to an analysis of the Federal Reserve and the money trust. She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are,, and

High Frequency Trading High-tech Highway Robbery
By Mike Whitney

April 18, 2010 "Information Clearing House" -- The Securities and Exchange Commission (SEC) knows that High-Frequency Trading (HFT) manipulates the market and bilks investors out of tens of billions of dollars every year. But SEC chairman Mary Schapiro refuses to step in and take action. Instead, she's concocted an elaborate "information gathering" scheme, that does nothing to address the main problem. Schapiro's plan--to track large blocks of trades by large institutional investors-- is an attempt to placate congress while the big Wall Street HFT traders continue to rake in obscene profits. It achieves nothing, except provide the cover Schapiro needs to avoid doing her job. High-frequency trading (HFT) is algorithmic-computer trading that finds "statistical patterns and pricing anomalies" by scanning the various stock exchanges. It's high-speed robo-trading that oftentimes executes orders without human intervention. But don't be confused by all the glitzy "state-of-the-art" hype. HFT is not a way of "allocating capital more efficiently", but of ripping people off in broad daylight. It all boils down to this: HFT allows one group of investors to see the data on other people's orders ahead of time and use their supercomputers to buy in front of them. It's called front-loading, and it goes on every day right under Schapiros nose. In an interview on CNBC, HFT-expert Joe Saluzzi was asked if the big HFT players were able to see other investors orders (and execute trades) before them. Saluzzi said, "Yes. The answer is absolutely yes. The exchanges supply you with the data, giving you the flash order, and if your fixed connection goes into their lines first, you are disadvantaging the retail and institutional investor." The brash way that this scam is carried off is beyond belief. The deep-pocket bank/brokerages actually pay the NYSE and the NASDAQ to "colocate" their behemoth computers ON THE FLOOR OF THE EXCHANGES so they can shave off critical milliseconds

after they've gotten a first-peak at incoming trades. It's like parking the company forklift in front of the local bank vault to ease the transfer of purloined cash. Due to the impressive research of bloggers like Zero Hedge's, Tyler Durden and Market Ticker's, Karl Denniger, many people have a fairly good grasp of HFT and understand that the SEC needs to act. But Schapiro has continued to drag her feet while issuing endless proclamations about pursuing the wrongdoers. Baloney. She needs to stop yammering and shut these operations down. In a recent posting, Market Ticker explained some of the finerpoints of high-frequency trading, such as, how the banks/brokerages probe the exchanges with small orders in order to find out how much other investors are willing to pay for a particular stock. Here's a clip: "Let's say that there is a buyer willing to buy 100,000 shares of Broadcom with a limit price of $26.40. That is, the buyer will accept any price up to $26.40. But the market at this particular moment in time is at $26.10, or thirty cents lower. So the computers, having detected via their "flash orders" that there is a desire for Broadcom shares, start to issue tiny "immediate or cancel" orders - IOCs - to sell at $26.20. If that order is "eaten" the computer then issues an order at $26.25, then $26.30, then $26.35, then $26.40. When it tries $26.45 it gets no bite and the order is immediately canceled. Now the flush of supply comes at $26.39, and the claim is made that the market has become "more efficient." Nonsense; there was no "real seller" at any of these prices! This pattern of offering was intended to do one and only one thing manipulate the market by discovering what is supposed to be a hidden piece of information - the other side's limit price! With normal order queues and flows the person with the limit order would see the offer at $26.20 and might drop his limit. But the computers are so fast that unless you own one of the same speed you have no chance to do this - your order is immediately "raped" at the full limit price!

The presence of these programs will guarantee huge profits to the banks running them and they also guarantee both that the retail buyers will get screwed as the market will move MUCH faster to the upside than it otherwise would. If you're wondering how Goldman Sachs and other "big banks and hedge funds" made all their money this last quarter, now you know." ("High-Frequency Trading is a Scam", Market Ticker) The HFT uber-computers are able to find out the highest price that traders will pay in a millisecond and then extort that full amount millions of times to maximize profits. Clearly, this has nothing to do with efficiency or innovation. It's high-tech highway robbery; institutional bid-rigging on a grand scale, tacitly sanctioned by industry lackeys operating from within the administration. Schapiro was picked by Team Obama for this very reason; because she was known as a regulator with a "light touch" when she headed Finra the financial industry's self policing agency. As Finra's chief , Schapiro managed to keep her head in the sand during the Madoff scandal and the auction-rate securities flap. She also issued far fewer fines and penalties than her predecessor. Here's an excerpt from the Wall Street Journal which sums up Schapiro's regulatory doctrine: "The Financial Services Institute, a trade group, was meeting, and Ms. Schapiro addressed the crowd about Finra s efforts to fight frauds aimed at senior citizens. Frank Congemi, a financial adviser, asked what Finra was doing to regulate packaged products such as complex mortgage securities. Mr. Congemi says that Ms. Schapiro replied: We have rating agencies that rate them. The credit-rating agencies, by this time, were being heavily criticized for having given triple-A ratings to mortgage bonds that became unsalable as foreclosures rose." (Wall Street Journal) If the financial crisis has taught us anything, it's that the system is NOT self-correcting. And it takes more than just rules. It takes regulators who are willing to regulate.

Two Right-Wing Billionaire Brothers Are Remaking America for Their Own Benefit By Jim Hightower March 20, 2010 "Lowdown" -- Despite a constant racket from the forces of the far-out right (Fox television's yackety-yackers, justsay-no GOP know-nothings, tea-bag howlers, Sarah Palinistas, et al.), the great majority of Americans support a bold progressive agenda for our country, ranging from Medicare for all to the decentralization and re-regulation of Wall Street. Indeed, in the elections of 2006 and 2008, people voted for a fundamental break from Washington's 30-year push to enthrone a corporate kleptocracy. Yet the economic and political thievery continues, as the White House, Congress, both parties, the courts, the media, much of academia, and other national institutions that shape our public policies reflexively shy away from any structural change. Instead, the first instinct of these entities is to soothe the fevered brow of corporate power by insisting that corporate primacy be the starting point of any "reform." Thus, when Washington began its widely ballyhooed effort last year to reform our health-care system, step number one was to announce publicly that the monopolistic, bureaucratic insurance behemoths that cost us so much and deliver so little would retain their controlling position in the structure. Likewise, Wall Street barons who crashed America's financial system were allowed to oversee the system's remake -and (Big Surprise!) the same top-heavy structure and shaky practices that caused the crash are being kept in place. In other words, the foxes who ate the chickens keep being put in charge of designing the new hen house--so nothing really changes. This is more than frustrating, it's infuriating --and it's debilitating for our democracy. As a fellow said to me about the lack of real changes in national policy during the Clinton presidency, "I don't mind losing when we lose, but I hate losing when we win." Why does this keep happening to us, and who's doing it? It's not merely a matter of too many fickle and pusillanimous politicians-they're the on-stage actors in this drama, but not the producers, not the ones behind the scenes plotting to thwart the people's

democratic will. Who, specifically, are these plotters, and how do they impose their narrow agenda of self-interest over the public interest? These crucial questions for our democratic republic are the focus of this Lowdown, and they'll be a recurring topic in future issues. After all, to achieve genuine grassroots power, we have to know the full dimensions of the plutocratic powers we're up against. Most Americans are totally unaware of these interests, which have attained a dangerous reach by quietly embedding themselves (and their self-centered worldview) much more deeply in our society's governing institutions than they want us to realize. So let's take a peek at them, beginning with a look at the intricate web of power woven by a huge corporation you've probably never heard of, even though your consumer dollars are financing its right-wing political agenda. Anonymous Inc. It's none of my business, but maybe you have Northern tissue on your toilet roll. You might also buy Brawny paper towels, Dixie paper cups, and Vanity Fair napkins. Maybe you have clothing that owes its clingy and comfy stretchiness to Lycra, and perhaps you have a Stainmaster carpet or a Solarmax couch in your home. All of these well-known brands are owned and produced by a global conglomerate that deliberately tries to stay little known: Koch Industries (pronounced "coke"). Based in Wichita, Kansas, Koch is also a major producer of oil, gas, timber, coal, and cattle. It's a petroleum refiner, too, as well as a manufacturer of asphalt, chemicals, polyethylene plastic, nitrogen fertilizers, cement, and lumber products. It owns or controls some 4,000 miles of pipelines, including a piece of the Trans-Alaska Pipeline. And, in a poetic bow to its desire for anonymity, Koch also owns Teflon. With 70,000 employees in 60 countries, this publicity-shy giant is America's second-largest privately owned corporation. Being private means it makes very few disclosures about its finances and operating practices, but we do know that it has sales topping $100 billion a year, which means it is bigger than such corporate giants as Verizon and Morgan Stanley. The Billionaire Brothers

Charles and David Koch, who control this family-owned empire, are tied for a spot as the 19th-richest billionaire in the world, according to a 2009 ranking by Forbes. Each brother has a net worth of $14 billion, just below the wealth held by four heirs to the Wal-Mart fortune. Charles, 73, and David, 68, boast of being "selfmade" billionaires. Actually, that's a fib, for they had a little help from Daddy. Fred Koch, who died in 1967, started his name-sake business after inventing a method of turning heavy oil into gasoline, and his sons got a leg up on their climb to billionairedom by inheriting Fred's company. They also inherited something else: a burning ideological commitment to right-wing politics. How right wing? In 1958, Daddy Fred helped found the John Birch Society. Following in those footsteps, Charles and David have used the wealth they draw from Koch Industries to fuel a network of three Koch Family Foundations. During the past three decades, these "charitable" foundations have set up and financed a secretive army of political operatives dedicated to achieving the brothers' antigovernment, corporate-controlled vision for America. This stealth force includes national and state-level think tanks, Astroturf front groups, academic shills, university centers, political-training programs, fundraising clearinghouses, publications, lobbyists, and various other units useful to Charles and David's ideological cause. This army's effort is effective because it is comprehensive, well funded, coordinated, and focused on a longterm political strategy. Contrast that to the progressive movement, which largely consists of underfunded, unconnected groups and hops from battle to battle with little or no strategic planning. Koch's wicked web For some three decades, there's been a steadily inc reasing flow of think-tank studies, legislative proposals, articles, books, corporate lawsuits, citizen petitions, and other efforts to push for the deregulation of most industries and the privatization or elimination of government functions. These extremist ideas have never had strong public support, yet they've moved from the back burner of American policy in the 1970s to the red-hot front burner in the Bush years--and today we're paying the price for the adoption of these concepts at all levels of government, from privatization of local water supplies to the deregulation of Wall Street.

The different pushes to implement this antigovernment ideology have come from a wide assortment of seemingly independent groups and individuals, creating a sense of broad public demand for a libertarian corporate kingdom in America. However, when you examine those pushing this dog-eat-dog ethic, chances are you'll find that they have one thing in common: funding from the Koch fortune. The three Koch family foundations discreetly refrain from publishing the recipients of their beneficence, but some progressive watchdogs (see Do Something) have dug into the dense IRS reports that foundations must file, giving us a glimpse of the extensive right-wing web spun by this one oil family. The Kochs are not the only funders, of course--such other far-right family foundations as Bradley, Coors, Olin, and Scaife are also major players. But the size, scope, strategic purpose, and secrecy of the Koch investments make the brothers worthy of special attention. The following list by no means covers the entirety of their network (they've put money into hundreds of groups), but it'll give you a sense of their reach into every nook and cranny of public policy. Charles and David are not idle check-writers--they're actively involved in the creation and running of this interconnected web of political influence and hold top positions in many groups. For example, David is board chairman of Americans for Prosperity and is on the boards of the Cato Institute and Reason Foundation, while Charles (who founded Cato in 1977) is chairman of the Institute for Humane Studies and a director of the Mercatus Center. The focus of most political groups is to influence candidates, lawmakers, agency heads, and reporters at the top of the system. But these two brothers have been executing a concerted plan for more than 30 years not only to influence those at the top, but also to go much deeper. They spend freely on dozens of ideologically grounded, right-wing groups to influence schoolteachers and highschool curricula, state and federal judges, lawyers and legal scholars, conservative policy thinkers and media producers, c itycouncil candidates and local party activists--and their aim is to shove the country's national debate to the hard right, discombobulate the public's progressive wishes, and alter government policies to advance corporate interests generally and the Kochs' own interests specifically.

Here is a profile of just one of the Koch tentacles: Americans For Prosperity. AFP, the third-largest recipient of Koch foundation largesse, is the brothers' overtly political unit. Essentially, it is a front group for mass-producing front groups. Much like McDonald's churns out Big Mac franchises, AFP can pop out a grassrootsylooking, cookie-cutter political operation on demand. It has a $7 million annual budget that supports dozens of GOP operatives and former corporate PR veterans, all standing ready to assemble, fund, staff, and package a hot-to-go front group for any issue that comes up. Its menu includes such garnishes as hoked up studies, alarmist talking points, deceptive attack ads, divisive hate messages, celebrity and religious endorsers, and a menagerie of media stunts. AFP was launched by David Koch in 1984 as Citizens for a Sound Economy (CSE), a moniker it used until switching to its present name in 2003. It refuses to disclose its list of donors, but when it was known as CSE, about 70% of the $18 million it spent came from the Koch foundations. There's no reason to think that AFP is any less of a Koch-funded operation today, and David, as one of its top officers, continues to be actively engaged in directing the organization's work. And what a piece of work it is. Start with Tim Phillips, brought in to be AFP's president and Koch's point man in 2006. As a longtime Republican campaign director and Washington lobbyist for corporate interests, Phillips earned a reputation as one of the GOP's "Mr. Nasties," in the Karl Rovian mold. His credits include helping George W. Bush win the pivotal 2000 GOP primary in South Carolina by spearheading a smear campaign that used images of John McCain's adopted daughter from Bangladesh to claim that he had fathered a black child; helping Saxby Chambliss defeat incumbent Democratic Sen. Max Cleland (a highly decorated Vietnam vet who lost both legs and an arm in that war) in the 2002 Georgia election by creating a TV ad linking the Democrat to Osama bin Laden and claiming that he lacked the courage to fight terrorists; and working with super-sleaze corporate lobbyist Jack Abramoff in 1998 to stir up evangelical churches in opposition to a labor-law reform that would've ended the brutal exploitation of Chinese girls and young women enslaved in sweatshops on the Northern Mariana Islands, a U.S.

commonwealth. (Phillips rallied evangelicals by asserting that many of the Chinese workers "are exposed to the teachings of Jesus Christ" while on the islands "and return to China with Bibles in hand, so Congress should not interfere.) At AFP, Phillips has the Kochs' deep pockets and political network at his disposal to take on a broad range of right-wing corporate causes. While the organization has 23 state "chapters" and immodestly bills itself as the nation's "premier grassroots organization," it has only 8,000 actual members, is totally controlled by corporate money, is headquartered in Washington, D.C., and is run by the exact same kind of professional political insiders it pretends to detest. Consider the boisterous "tea bag" rebellion. No one professes more hatred for the two-party, business-as-usual political system in Washington than those angry Americans who're caught up in the tea-bag rallies. Yet unbeknownst to most of the mad-as-hellers who have showed up, it was AFP's Republican-tied lobbyists and political functionaries who cynically financed, organized, and orchestrated the very first tea-bag protest. AFP has steadily coopted the tea-bag faction to make it a front for the corporate agenda, and many of the tea-bag groups have devolved into subsidiaries of the Republican party. Indeed, AFP has become the Astroturf-To-Go Store, fabricating and spreading fake grassroots organizations all across the country. It was especially busy during the 2008 presidential campaign and in the first year of Obama's presidency. Here are a few recent AFP-manufactured campaigns on major public-policy issues: y PATIENTS UNITED NOW. The website for PUN (odd choice for an acronym, huh?) proclaims, "We are people just like you." However, that statement is true only if you're one of the people working as paid political hacks for AFP. PUN is nothing but a shell created by AFP's laissez-faire corporate extremists. The goal of this front group is to kill legislation that would restructure the rip-off health-insurance industry so real patients can get fairly priced, quality care. In addition to running farcical, antireform TV ads under PUN's name, the AFP-directed effort has included a "Hands Off My Health Care" bus tour. Its message wasn't subtle--a giant bloody hand was painted on the side of the bus, and a speaker traveling with the group repeatedly compared the Democrats' health-reform plans to the Holocaust.

HOT-AIR TOUR. During the past two years, people in 40 cities have been greeted by the sight of a 70-foot-tall hot-air balloon drifting over them. It heralded the arrival of a barnstorming tour to expose "the ballooning costs of global warming hysteria." This stunt had a just-folks veneer on it, but it was another AFP production--after all, as owners of the largest privately held oil corporation, the Koch brothers have a special interest in spreading denial about the existence of climate change. AFP ran ads mocking proponents of fossilfuel regulations as elitist brats more concerned about their "three homes and five cars" than about the jobs of working-class families (an incredible rhetorical gusher from a privileged billionaire like David, who lives the high life in Manhattan, where he hobnobs with the richest elites at society galas, while also owning a mansion in Aspen where he can curl up in luxury and sip fine wine from his collection of 5,000 vintage bottles). Perhaps he was tipsy on some of those grapes last fall when he attended an AFP summit of tea-party leaders and personally embraced the histrionics of a climate-denial film that accuses such leaders as Al Gore of wanting to bring back "the Dark Ages and the Black Plague." Among AFP's other fronts are: FREE OUR ENERGY, which clamored during the 2008 election season to open up our seashores and national parks to oil drillers; NO STIMULUS, which tried to rev up the tea-party network last year to kill Obama's economic-recovery plan; and SAVE MY BALLOT, yet another "grassroots tour," this one to rail against a proposal to stop corporate intimidation of workers trying to unionize (AFP paid Joe the Plumber to front this smear campaign). Out of the shadows It's not paranoia if they really are out to get you--and they are! "They" are the corporate powers that collect our consumer dollars and then, as hush-hush as possible, use that money to finance their interlocked array of right-wing foundations, think tanks, "scholars," media sparklies, political personalities, and other fronts. What the Kochs and their ilk are out to get is nothing less than America's commitment to the Common Good, colluding to kill such egalitarian proposals as Medicare for all, green-energy jobs, workplace democracy, decentralization of capital, and clean elections.

They pose publicly as enlightened industrialists. David Koch, for example, is an MIT-educated chemist and an enthusiastic evolutionist who has given $20 million to the American Museum of Natural History (which then--I kid you not--named its dinosaur wing after him). Yet David the Enlightened cynically pays groups to nurture ignorance and exploit it for his political gain, including paying to bus angry and confused people to "citizen" rallies and town-hall meetings where they literally end up shouting themselves red-faced in support of his corporate interests over their own. While such elites as the Kochs are a tiny minority of Americans, they've surreptitiously skewed our public debate, agenda, and policies to their self-serving agenda by instilling a totally false supposition within the mass media and both major parties that a volatile majority of people has a broad distrust of anything public and views government as the enemy. Thus even Democrats shrink from attempting anything more audacious than incremental reforms, meekly courting vituperous Republicans and corporatists who obviously are out to gut any forward-thinking changes. Jim Hightower is a national radio commentator, writer, public speaker, and author of the new book, "Swim Against the Current: Even a Dead Fish Can Go With the Flow." (Wiley, March 2008) He publishes the monthly "Hightower Lowdown," co-edited by Phillip Frazer. © 2010 Hightower Lowdown All rights reserved. The War on Toyota: It's All Politics
By Mike Whitney February 24, 2010 "Information Clearing House" -Does anyone really believe that Toyota is being pilloried in the media for a few highway fatalities? Nonsense. If Congress is so worried about innocent people getting killed, then why haven't they indicted US commander Stanley McChrystal for blowing up another 27 Afghan civilians on Sunday? But this isn't about bloodshed and it's certainly not "safety regulations". It's about politics--bare-knuckle Machiavellian politics. An attack on Toyota is an attack on Japan's leading export. It is an

act of war. Here's a excerpt from the New York Times which explains what is really going on: "The Japanese economy has emerged from its worst recession since World War II, but is still reeling. Japan must do more to lift its economy out of deflation and boost long -term growth, S.&P. said. The outlook change reflects our view that the Japanese government s diminishing economic policy flexibility may lead to a downgrade unless measures can be taken to stem fiscal and deflationary pressures, S.&P. said. The policies of the new Democratic Party of Japan government point to a slower pace of fiscal consolidation than we had previously expected. President Barack Obama is expected to address similar worries in the Untied States on Wednesday, with a call for a freeze in spending on many domestic programs, a move he hopes will quell perceptions that government spending is out of control. Fiscal problems in Greece and Ireland have also helped put the spotlight on the issue of national debt." ("Japan s High Debt Prompts Credit Rating Warning", HIROKO TABUCHI AND BETTINA WASSENER, NY Times) Japan's new liberal government is fighting deflation using the traditional methodology, by lowering interest rates and increasing fiscal stimulus. But that's not what Washington wants. Neoliberal policymakers and their buddies in the right-wing think tanks want "fiscal consolidation" which means harsh austerity measures that will deepen the recession, increase unemployment, and trigger a wave of defaults and bankruptcies. This is how western corporatists and bank tycoons keep their thumb on the developing world and thrust their economies into perennial crisis. It's the "shock doctrine" and it's been the IMF's modus operandi for over 20 years. Japan is being stuffed into a fiscal straight-jacket by supporters of the Washington consensus whose goal is to weaken government and accelerate the privatization of public assets and services. The ratings agencies are being used in the same way as the media; to wage an economic/guerrilla war on Japan and force the administration to rethink their economic policies. (Note: There is no chance that Japan will default on its debt because it pays its debts in its own currency and has large foreign exchange reserves of over $1 trillion) The attacks on Toyota are a way of showing Tokyo what

happens to countries that fail to obey Washington's orders. Here's a clip from the New York Times which sums up the problem in a nutshell: The government of Prime Minister Yukio Hatoyama has "bolstered spending on social programs aimed at helping households......The powerful lower house of parliament approved a supplementary budget for the fiscal year that ends in March worth ¥7.2 trillion, or $80.3 billion, to help shore up the economy...And next year, government spending will grow further with a record trillion-dollar budget including ambitious welfare outlays. (New York Times) Western elites will not tolerate economic policies which raise the standard of living for the average working slob. "Social programs" or "welfare outlays" are anathema to their trickle down, Voodoo capitalist orthodoxy. What they want is upward redistribution and class warfare. Regrettably, Prime Minister Yukio Hatoyama has put himself at odds with US powerbrokers and is feeling the full measure of their wrath. His public approval ratings have plummeted to 37 percent and are headed downward still. The message is simple: Cross Washington and you're a goner.


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Behemoths Bor of the Bailout Reduce Consumer Choice, Tempt Corporate Moral Hazard
By David Cho Washington Post Staff Writer Friday, August 28, 2009

When the credit crisis struck last year, federal regulators pumped tens of billions of dollars into the nation's leading financial institutions because the banks were so big that officials feared their failure would ruin the entire financial system. Today, the biggest of those banks are even bigger. The crisis may be turning out very well for many of the behemoths that dominate U.S. finance. A series of federally arranged mergers safely landed troubled banks on the decks of more stable firms. And it allowed the survivors to emerge from the turmoil with strengthened market positions, giving them even greater control over consumer lending and more potential to profit. J.P. Morgan Chase, an amalgam of some of Wall Street's most storied institutions, now holds more than $1 of every $10 on deposit in this country. So does Bank of America, scarred by its acquisition of Merrill Lynch and partly government-owned as a result of the crisis, as does Wells Fargo, the biggest West Coast bank. Those three banks, plus government-rescued and -owned Citigroup, now issue one of every two mortgages and about two of every three credit cards, federal data show. A year after the near-collapse of the financial system last September, the federal response has redefined how

Americans get mortgages, student loans and other kinds of credit and has made a national spectacle of executive pay. But no consequence of the crisis alarms top regulators more than having banks that were already too big to fail grow even larger and more interconnected. "It is at the top of the list of things that need to be fixed," said Sheila C. Bair, chairman of the Federal Deposit Insurance Corp. "It fed the crisis, and it has gotten worse because of the crisis." Regulators' concerns are twofold: that consumers will wind up with fewer choices for services and that big banks will assume they always have the government's backing if things go wrong. That presumed guarantee means large companies could return to the risky behavior that led to the crisis if they figure federal officials will clean up their mess. This problem, known as "moral hazard," is partly why government officials are keeping a tight rein on bailed-out banks -- monitoring executive pay, reviewing sales of major divisions -- and it is driving the Obama administration's efforts to create a new regulatory system to prevent another crisis. That plan would impose higher capital standards on large institutions and empower the government to take over a wide range of troubled financial firms to wind down their businesses in an orderly way. "The dominant public policy imperative motivating reform is to address the moral hazard risk created by what we did, what we had to do in the crisis to save the economy," Treasury Secretary Timothy F. Geithner said in an interview. The worry for consumers is that the bailouts skewed the financial industry in favor of the big and powerful. Fresh data from the FDIC show that big banks have the ability to borrow more cheaply than their peers because creditors assume these large companies are not at risk of failing. That imbalance could eventually squeeze out smaller competitors. Already, consumers are seeing fewer choices and higher prices for financial services, some senior government officials warn.

Those mergers were largely the government's making. Regulators pushed failing mortgage lenders and Wall Street firms into the arms of even bigger banks and handed out billions of dollars to ensure that the deals would go through. They say they reluctantly arranged the marriages. Their aim was to dull the shock caused by collapses and prevent confidence in the U.S. financial system from crumbling. Officials waived long-standing regulations to make the deals work. J.P. Morgan Chase, Bank of America and Wells Fargo were each allowed to hold more than 10 percent of the nation's deposits despite a rule barring such a practice. In several metropolitan regions, these banks were permitted to take market share beyond what the Department of Justice's antitrust guidelines typically allow, Federal Reserve documents show. "There's been a significant consolidation among the big banks, and it's kind of hollowing out the banking system," said Mark Zandi, chief economist of Moody's "You'll be left with very large institutions and small ones that fill in the cracks. But it'll be difficult for the mid-tier institutions to thrive." "The oligopoly has tightened," he added. Consumer Choice Federal officials and advocacy groups are just beginning to study the impact of the crisis on consumers, but there is some evidence that the mergers are creating new challenges for ordinary Americans. In the last quarter, the top four banks raised fees related to deposits by an average of 8 percent, according to research from the Federal Reserve Bank of Dallas. Striving to stay competitive, smaller banks lowered their fees by an average of 12 percent. "None of us are saying dismember these institutions. But you do want to create a system that allows for others to grow, where no one has an oligopolistic power at the expense of

others who might be able to provide financial services to consumers," said Richard Fisher, president of the Federal Reserve Bank of Dallas. Normally, when faced with price increases, consumers simply switch. But industry officials said that is not so easy when it comes to financial services. In Santa Cruz, Calif., Wells Fargo, Bank of America and J.P. Morgan Chase hold three-quarters of the deposit market. Each firm was given tens of billions of dollars in bailout funds to help it swallow other banks. The rest of the market, which consists of a handful of tiny community banks, cannot match the marketing power of the bigger banks. Instead, presidents of the smaller companies said, they must offer more personalized service and adapt to technological changes more quickly to entice customers. Some acknowledged it can be a tough fight. Wells Fargo is "really, really good at the way they cross-sell and get their tentacles around you," said Richard Hofstetter, president of Lighthouse Bank, whose only branch is in Santa Cruz. "Their customers have multiple areas of their financial life involved with Wells Fargo. If you have a checking account and an ATM and a credit card and a home-equity line and automatic bill payments . . . to change that is a major undertaking." Wells Fargo, J.P. Morgan and Bank of America declined to comment for this article. Last October, when the Fed was arranging the merger between Wells Fargo and Wachovia, it identified six other metropolitan regions in which the combined company would either exceed the Justice Department's antitrust guidelines or hold more than a third of an area's deposits. But the central bank thought local competition in each of those places was sufficient to allow the merger to go through, documents show. Camden Fine, president of the Independent Community Bankers of America, said those comments reveal the

government's preferential treatment of big banks. He doubted whether the Fed would approve the merger of community banks if the combined company ended up controlling more a third of the market. "To favor one class of financial institutions over another class skews the market. You don't have a free market; you have a government-favored market," he said. "We will never have free markets again if you have the government picking winners and losers." Moral Hazard Before the crisis, many creditors thought that the big institutions were a relatively safe investment because they were diversified and thus unlikely to fail. If one line of business struggled, each bank had other ventures to keep the franchise afloat. And even if the entire house caught fire, wouldn't the government step in to cover the losses? With executives comforted by that thinking, risk came unhinged from investment decisions. Wall Street borrowed to make money without having enough in reserves to cover potential losses. The pursuit of profit was put ahead of the regard for safety and soundness. The federal bailouts only reinforced the thought that government would save big banks, no matter how horrible their decisions. Today, even with the memory of the crisis fresh in their minds, creditors are granting big institutions more favorable treatment because they know the government is backing them, FDIC officials said. Large banks with more than $100 billion in assets are borrowing at interest rates 0.34 percentage points lower than the rest of the industry. Back in 2007, that advantage was only 0.08 percentage points, according to the FDIC. Such differences can cause huge variance in borrowing costs given the massive amount of money that flows through banks.

Many of the largest banks reported a surge in profit during the most recent quarter, including J.P. Morgan Chase and Goldman Sachs. They are prospering while many regional and community banks are struggling. Nearly three dozen of the smaller institutions have failed since July 1, including Community Bank of Nevada and Alabama-based Colonial Bank just last week. If the government continues to back big firms over small, regulators worry that reckless behavior could return to Wall Street. The administration's regulatory reform plan takes aim at this problem by penalizing banks for being big. It would require large institutions to hold more capital and pay higher regulatory fees, as well as allow the government to liquidate them in an orderly way if they begin to fail. The plan also seeks to bolster nontraditional channels of finance to create competition for large banks. If Congress approves the proposal, Geithner said, it would be clear at launch which financial companies would face these measures. Economists and officials debate whether these steps would address the too-big-to-fail problem. Some say, for instance, that determining the precise amount of capital big financial companies should hold in their reserves will be difficult. Geithner acknowledged that difficulty but said the administration would probably lean toward being more strict. Taken together, the combination of reforms would be a powerful counterbalance to big banks, he said. "Our system is not going to be significantly more concentrated than it is today," Geithner said. "And it's important to remember that even now, our system remains much less concentrated and will continue to provide more choice for consumers and businesses than any other major economy in the world." First in an occasional series of articles.

Global Financial Reform The New Financiers By Hazel Henderson A venture capitalist friend of mine asked me in a recent discussion about the financial meltdown, who will be the new financiers? I answered immediately, the new financiers will be the high-level information and knowledge brokers and they will aggregate the new research on global change processes and lead in structuring the deals now creating the growing green economy. Today information and media drive markets. These new financiers are already operating unseen by traditional Wall Streeters and asset managers. They are largely invisible to current financial players and governments because information is their prime currency; rather than money. The new deal-makers value the role of honest, wellmanaged currencies that remain dependable stores of value and mediums of exchange. Money is a special kind of information, not a commodity in itself, but rather a brilliant invention of the human mind. When backed by real-world goods and service, as well as strong contracts, money can accurately track and score human ingenuity, productivity and transactions interacting with the natural wealth of resources of our home: Planet arth. The problem with money is keeping it honest and keeping its promise to pay firm. From the goldsmiths who over-lent against their piles of gold held in storage for their customers, to the kings who shaved of the edges of coins and today s bankers who create our money out of thin air, we humans have found many ways to debase our currencies. Human activities grew from traditional barter, mutual aid and gifting to the invention of money back around 3,000 BC. Our money evolved from clay tablets, shells and cows to metal tokens, gold, silver, today s paper money and electronic currencies that are blips on millions of financial trading screens.


As we expanded worldwide with the advent of the Industrial Revolution in Europe 300 years ago, our need to trade and exchange grew exponentially. This required expanding our money systems of exchange. Gold, which backed most currencies in growing international trade, became too constricting there just wasn t enough of if. Many traders turned to silver and other precious metals. Soon, the lack of gold led governments to issue paper fiat currencies backed only by promises and a fraction of actual gold. Some countries shut their gold windows, including the USA in 1971, and restricted their citizens from owning gold. Our current financial crises go beyond those earlier contractions, panics and recessions caused by the lack of gold or sufficient supplies of credible paper money. Central bankers have learned the lessons of the Great Depression. The money supply must keep up with, not surpass, the expansion of production and trading as a country grows and its real economy progresses. Today, the interlinking of all countries economies due to the globalization of finance and technology caused moneycreation to go wild, leading to a credit bubble and mountains of debt. Computerization of finance and markets speeded up trading to seconds; satellite inter-linkage of round-the-clock stock and commodity exchanges led to the explosion of derivatives contracts, ever more exotic securitization of packages of mortgages, student loans and credit card debts. Risk-analysis was relegated to ivory-tower mathematicians algorithms which ignored real-world conditions. All this multiplied the creation of money and credit exponentially. Reckless, poorly regulated financial firms on Wall Street sold their dubious, toxic securities to gullible investors and pension funds (which should have known better) around the world. For example, the bets on who might default, called credit default swaps, grew unregulated to now comprise $683 trillion of contracts (Bank for International Settlements December 2008) while real global production

measures only the $62 trillion of global GDP (IMF October 2008). The resulting crises were predicted by me and others over the past decades. All that money and debt creation led to illusory gains and today s inevitable losses and de-leveraging. The bubble in finance and money itself has popped. Central bankers and financiers, schooled in the world s leading business schools and economics departments focus on money and global monetary circuitry. They were rarely taught that money was simply one form of information now deeply devalued as all the new forms of money-creation went wild. Today, we see central bankers printing money on TV. No amount of ink and paper can print enough new money to close the hole between that $683 trillion of false promises and the world s real GDP of $62 trillion. The only issue is who will take the hit. Up to now, the political influence of financial sectors has forced taxpayers to bail out financiers. The blatant unfairness and stupidity of this has caused huge outcries from outraged citizens. Those billions given to irresponsible bankers could have financed universal healthcare and college education. This is the end of finance based only on money and fiat currencies. We now know it s about priorities and values. Enter the new financiers: those high-level information and knowledge brokers who understand our Information Age and the great transition from the fossil-fueled Industrial Age to our new Solar Age. Overloaded money-circuits have broken down and the huge new volume of transactions in the past decade have migrated to the internet. Pure information-based exchange and sharing has led to the new hybrid economic model described by experts, including Lawrence Lessig s Remix (2008), Yoichi Benkler s The Wealth of Networks (2007), Don Tapscott s Wikinomics (2008), Verna Allee s Knowledge Evolution (1997) and my own work (

This hybrid economy is half the old money-based competition and half information-based sharing, cooperation and exchange. From electronic stock exchanges, Instinet, Archipelago, NASDAQ, Knight and Entrex to Google, e-Bay, Craigslist, Amazon, Facebook and Wikipedia, we are seeing how money-obsessed financiers are trailing behind. The new financiers: those high-level information brokers go beyond economics to understanding whole systems and the human family on planet Earth. Money may return to its honest base, reflecting real world values of Main Street productivity, but may never again be the dominant medium of exchange. Just as gold remains valuable but can no longer support the new volume of human transactions. Money will be superseded by all the new digital currencies already circulating from local exchange trading systems (LETS) and complementary currencies like Berkshares and Wirs in Switzerland to Freecycle and many other barter sites, cell phone networks and radio shows. Incumbent money-circuit players will try to get regulators to shut down these upstart, disruptive technologies and competitors. The US Securities and Exchange Commission (SEC), for example, shut down the website which boomed by facilitating local residents and businesses in lending to each other. The new financiers are operating these new digital trading platforms in many countries. Many designs for global digital currencies are on the way. They will complement the IMF s Special Drawing Rights, another pure information-based currency for international development which is still conceptually tied to gold. The new financiers will show why the old financiers and central bankers can no longer have a monopoly on money and its creation. Information-based currencies and trading platforms will operate wherever necessary for evolving human communities so as to match needs with resources and

create jobs from local and regional to national and international exchange. Today s financial crisis is facilitating the evolutionary jump to the next stage of human development shifting from faulty, money-measured GDP growth to the cleaner, greener, sustainable economies. Governments are realizing that they must now also correct those money-based indicators and GDP national accounts to adopt the new Quality of Life Indicators. Pension funds have realized their errors in chasing only short-term money returns and are demanding that companies report their performance beyond the old single bottom line of money to the triple bottom line, including progress on social, environmental and governance performance. Welcome to the Information Age. al_reform_global

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