Money matters October 5, 2011
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“Make no mistake. Lurking here is another giant bailout of the Street. The United States wants Europe to bail out its deeply indebted nations so European banks don’t implode. And they don’t want European banks to implode because they don’t want the Street to crash again like it did three years ago. Full circle. In other words, Greece isn’t the real problem. Nor is Ireland, Italy, Portugal, or Spain. The real problem is the financial system – centered on Wall Street.”
Portrait, Robert Reich, 08/16/09. (photo: Perian Flaherty)
Another Giant Bailout of Wall Street?
By Robert Reich, Robert Reich’s Blog
04 October 11
Follow the Money: Behind Europe’s debt crisis lurks another giant bailout of Wall Street.
oday Ben Bernanke added his voice to those who are worried about Europe’s debt crisis.
But why exactly should America be so concerned? Yes, we export to Europe – but those exports aren’t going to dry up. And in any event, they’re tiny compared to the size of the US economy.
If you want the real reason, follow the money. A Greek (or Irish or Spanish or Italian or Portugese) default would have roughly the same effect on our financial system as the implosion of Lehman Brothers in 2008.
Financial chaos.
Investors are already getting the scent. Stocks slumped to 13-month low on Monday as investors dumped Wall Street bank shares.
The Street has lent only about $7 billion to Greece, as of the end of last year, according to the Bank for International Settlements. That’s no big deal.
But a default by Greece or any other of Europe’s debt-burdened nations could easily pummel German and French banks, which have lent Greece (and the other wobbly European countries) far more.
That’s where Wall Street comes in. Big Wall Street banks have lent German and French banks a bundle.
The Street’s total exposure to the euro zone totals about $2.7 trillion. Its exposure to to France and Germany accounts for nearly half the total.
And it’s not just Wall Street’s loans to German and French banks that are worrisome. Wall Street has also insured or bet on all sorts of derivatives emanating from Europe – on energy, currency, interest rates, and foreign exchange swaps. If a German or French bank goes down, the ripple effects are incalculable.
Get it? Follow the money: If Greece goes down, investors start fleeing Ireland, Spain, Italy, and Portugal as well. All of this sends big French and German banks reeling. If one of these banks collapses, or show signs of major strain, Wall Street is in big trouble. Possibly even bigger trouble than it was in after Lehman Brothers went down.
That’s why shares of the biggest US banks have been falling for the past month. Morgan Stanley closed Monday at its lowest since December 2008 – and the cost of insuring Morgan’s debt has jumped to levels not seen since November 2008.
It’s rumored that Morgan could lose as much as $30 billion if some French and German banks fail. (That’s from Federal Financial Institutions Examination Council, which tracks all cross-border exposure of major banks.)
$30 billion is roughly $2 billion more than the assets Morgan owns (in terms of current market capitalization.)
But Morgan says its exposure to French banks is zero. Why the discrepancy? Morgan has probably taken out insurance against its loans to European banks, as well as collateral from them. So Morgan at least feels safe.
Should it? Does anyone remember something spelled AIG? That was the giant insurance firm that went bust when Wall Street began going under. Wall Street thought it had insured its bets with AIG. Turned out, AIG couldn’t pay up.
Haven’t we been here before?
Republicans and Wall Street executives who continue to yell about Dodd-Frank overkill are dead wrong. The fact no one seems to know Morgan’s exposure to European banks or derivatives – or that of most other giant Wall Street banks – shows Dodd-Frank didn’t go nearly far enough.
Regulators still don’t know what’s happening on the Street. They don’t know whether Morgan is telling the truth. They have no clear picture of the derivatives exposure of giant US financial institutions.
Which is why Washington officials are terrified – and why Treasury Secretary Tim Geithner keeps begging European officials to bail out Greece and the other deeply-indebted European nations.
Several months ago, when the European debt crisis became apparent, Wall Street banks said not to worry. They had little or no exposure to Europe’s problems. The Federal Reserve said the same. In July, Ben Bernanke reassured Congress the exposure of US banks to European nations in trouble was “quite small.”
Now we’re hearing a different tune.
Make no mistake. Lurking here is another giant bailout of the Street. The United States wants Europe to bail out its deeply indebted nations so European banks don’t implode. And they don’t want European banks to implode because they don’t want the Street to crash again like it did three years ago.
One of the many ironies here is some European nations went deeply into debt bailing out their banks from the last crisis.
Full circle.
In other words, Greece isn’t the real problem. Nor is Ireland, Italy, Portugal, or Spain. The real problem is the financial system – centered on Wall Street.
Robert Reich is Chancellor’s Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written thirteen books, including “The Work of Nations,” “Locked in the Cabinet,” “Supercapitalism” and his latest book, “AFTERSHOCK: The Next Economy and America’s Future.” His ‘Marketplace’ commentaries can be found on publicradio.com and iTunes.
Colombia October 4, 2011
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Rights Group: Little Progress in Stemming Killings of Colombian Trade Unionists
Trade Pacts Move Forward, But Colombia Still UnSafe for Unionists
BOGOTA, Colombia — A new study challenges claims from the administration of President Barack Obama that Colombia is making important strides in bringing to justice killers of labor activists and so deserves U.S. congressional approval of a long-stalled free trade pact.
US President Barack Obama meets with Colombian President Juan Manuel Santos in the Oval Office at the White House in Washington, on April 7, 2011. Yesterday Obama submitted three trade pacts to Congress despite continued concerns about their impact on the US economy and human rights violations in Colombia. (Reuters) The Human Rights Watch study found “virtually no progress” in getting convictions for killings that have occurred in the past 4 1/2 years.
It counted just six convictions obtained by a special prosecutions unit from 195 slayings between January 2007 and May 2011, with nearly nine in 10 of the unit’s cases from that period in preliminary stages with no suspect formally identified.
Democrats in the U.S. Congress have long resisted bringing the Colombia trade pact to a vote, citing what they said is insufficient success in halting such killings.
The White House disagrees, and says Colombia has made significant progress in addressing anti-unionist violence.
US President Barack Obama sent long-stalled free trade deals with Colombia, Panama and South Korea to Congress and pressed lawmakers to approve them “without delay.” Republicans endorse the bill overall and say it will increase U.S. exports by $13 billion a year and support tens of thousands of jobs.
U.S. Trade Representative Ron Kirk recently said the trade agreements are “an integral part of the President’s plan to create jobs here at home.”
But in Colombia, the world’s most lethal country for labor organizing, the killings haven’t stopped. At least 38 trade unionists have been slain since President Juan Manuel Santos took office in August 2010, says Colombia’s National Labor School.
“A major reason for this ongoing violence has been the chronic lack of accountability for cases of anti-union violence,” Human Rights Watch said in a letter sent last Thursday to Colombian Chief Prosecutor Viviane Morales that details the study’s findings.
Convictions have been obtained for less than 10 percent of the 2,886 trade unionists killed since 1986, and the rights group said it found “severe shortcomings” in the work of a special unit of Morales’ office established five years ago to solve the slayings. The letter says the unit has demonstrated “a routine failure to adequately investigate the motive” in labor killings as well as to “bring to justice all responsible parties.”
A chief finding: The 74 convictions achieved over the past year owe largely to plea bargains with members of illegal far-right militias who confessed to killings in exchange for leniency.
They did so under the so-called Justice and Peace law that gave paramilitary fighters reduced prison sentences of up to eight years in exchange for laying down their arms and confessing to crimes. That law expired at the end of 2006, the year the free trade pact was signed.
Only in a handful of cases did prosecutors pursue evidence that the paramilitaries who confessed acted on the orders of politicians, employers or others, Human Rights Watch says.
Prosecutors “made virtually no progress in prosecuting people who order, pay, instigate or collude with paramilitaries in attacking trade unionists,” the letter states. “What is at stake is the justice system’s ability to act as an effective deterrent to anti-union violence.”
Of the more than 275 convictions handed down through May, 80 percent were against former members of the United Self-Defense Forces of Colombia, or AUC. The head of international affairs in the chief prosecutor’s office, Francisco Echeverri, told the AP that it has put 513 people in prison.
In nearly half of 50 recent convictions reviewed by Human Rights Watch, the judges cited “evidence pointing to the involvement of members of the security forces or intelligence services, politicians, landowners, bosses or co-workers.” Yet in only one of those cases was such an individual convicted.
In the case of a gym teacher and union activist killed in the northwestern town of San Rafael in 2002, one of the paramilitaries who confessed to the crime said it was committed at the request of the mayor, according to the judge’s decision.
The man who was mayor at the time and was re-elected in 2008, Edgar Eladio Giraldo, is not being formally investigated and has not been questioned about the killing, said Hernando Castaneda, chief of the special unit.
“I have no knowledge of that and did not know that I was involved in that,” Giraldo told The Associated Press by telephone when asked about the killing of Julio Ernesto Ceballos.
A spokeswoman for Chief Prosecutor Morales said Sunday that her boss had not yet yet seen the Human Rights Watch letter.
Dan Kovalik of the United Steel Workers said the study’s findings and the continued killings “prove what labor is telling the White House: The labor rights situation in Colombia is not improving, and passage of the FTA is not appropriate.”
A memo soon to be released by the AFL-CIO deems Colombia noncompliant with the “Labor Action Plan” Santos and Obama agreed to in April as a condition for White House approval of the free trade pact.
In the memo, shown to the AP, the labor federation finds neither “economic, political, or moral justification for rewarding Colombia with a free trade agreement.”
Deputy Assistant U.S. Trade Representative Nkenge Harmon said Friday when presented with the study’s findings that Colombia’s record prosecuting “perpetrators of violence” against labor activists “has improved significantly,” though she added that Colombian officials acknowledge more needs to be done.
Harmon also stressed that additional Colombian resources are being dedicated to the issue and that the U.S. government “is working intensively with them through training and support.”
Human Rights Watch acknowledged that annual trade unionists killings are only a quarter of what they were a decade ago. And it applauded some measures taken by Chief Prosecutor Morales, including her announcement that an additional 100 police investigators would be assigned to the special investigative unit.
But HRW regional director Jose Miguel Vivanco said “the challenge (Morales) is facing remains huge.”
A U.S. congressman who has met with various Colombian presidents on human rights issues, Jim McGovern, a Democrat from Massachusetts, doesn’t think enough has been done to reverse what he called a “dismal” record.
Said McGovern: “My worry is that if you approve the FTA at this particular point you remove all the pressure off the powers that be in Colombia to actually make a sincere, honest and concerted attempt to improve the situation.”
Associated Press writers Vivian Sequera and Libardo Cardona contributed to this report.
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Let “some” firms go down? The reason for the fear everywhere is that it’s all tied together. Pull out one or two cards and the whole house of cards goes down; the good with the bad. That’s one point of Reich’s essay. The other point, implied, is that maybe that is exactly what needs to happen, so we can lay to rest the absurd abstraction known as the “free market.”
A lot of people, myself included, can’t “get our money out of the stock market.” We get a pension and have no control over the pension fund’s investments.
Any way you look at it, it’s a hard rain that’s gonna fall. Maybe that’s what needs to happen.
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3. Carl Rove & Koch & etc will spend about a Billion (Rachael Maddows gave exact amount)
4. Several MILLION Americans will not be able to vote because of the laws GOP/TP governors have passed (along with not including democratic registered people getting ballots, etc.)
5. J.P. Morgan gave the N.Y. P.D. several hundred $$$ (gift?) NO — those are the “white shirts” you see at the Brooklyn Bridge etc.
If the USA cannot control our government — the whole world will be bought up by these pigs (Koch Bro, Rove, etc)
VOTE DEM + VOTE OBAMA + get other dems to go with you to poor, minority, etc dem neighborhoods to insure those people get IDs and mail-in ballots. Our elections are free and so are those IDs -
This is the most important election ever! Do NOT NOT vote DEM
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or DO NOT vote FOR Dems?
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Without this turnaround, this “bailout” of the entire American economy, there’s no hope.
And the hedge fund managers at the banks are running with their current license to print money and stash it.
With that investment in our *people*, and the spending that will lead to, worldwide *confidence* will return. And investments in the businesses that still survive, the businesses that employ people.
Is it too late, though?
Put the trillion into jobs, not banks. Then the banks will survive, as a consequential benefit, again, because both bank confidence, and the public’s, will return.
Phone your congressperson now and urge passage of the Jobs Bill immediately. Obama isn’t kidding around. This is the moment; we are about to plunge off an unimaginable cliff, after which money itself will lose its value. . ,
Reich isn’t kidding either.
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What’s more, there is nothing inherently wrong with diffusing credit risk by using the credit default swap market, provided that, unlike AIG, which insured but retained its mortgage exposure, one appropriately lays off that exposure with another counterparty.
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Sanford Rose
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the first step is to reinstate FDR’s Glass-Steagall Act with which he saved America in 1933, separating the world’s big bank system from our own local banks. Ask your representatives to pass the Glass-Steagall Act that the Bush Adminstration got rid of.