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Criminal Charges Loom For Goldman Sachs After Scathing Senate Report | Forbes

By Halah Touryalai

A Senate panel released a damning report accusing the likes of Goldman Sachs of engaging in massive conflicts of interest, contaminating the U.S. financial system with toxic mortgages and undermining public trust in U.S. markets in the months leading up to the financial crisis.

Just when you thought Washington lawmakers were over that whole financial crisis thing, Senator Carl Levin, D-Mich., and Senator Tom Coburn M.D., R-Okla, blast Wall Street in a 635-page report stemming from a 2-year bipartisan investigation on the key causes of the crisis.

The report comes at a time when much of the feeling from lawmakers in Washington is that Wall Street is being over-regulated by the new Dodd-Frank rules.

The report from the Senate’s Permanent Subcommittee on Investigations however takes an opposite view by citing internal documents and private communications of bank executives, regulators, credit ratings agencies and investors to depict an industry that  was rife with conflicts of interest and reckless during the mortgage surge.

Senator Levin said in the release yesterday:

“Using emails, memos and other internal documents, this report tells the inside story of an economic assault that cost millions of Americans their jobs and homes, while wiping out investors, good businesses, and markets,” said Levin. “High risk lending, regulatory failures, inflated credit ratings, and Wall Street firms engaging in massive conflicts of interest, contaminated the U.S. financial system with toxic mortgages and undermined public trust in U.S. markets.  Using their own words in documents subpoenaed by the Subcommittee, the report discloses how financial firms deliberately took advantage of their clients and investors, how credit rating agencies assigned AAA ratings to high risk securities, and how regulators sat on their hands instead of reining in the unsafe and unsound practices all around them.  Rampant conflicts of interest are the threads that run through every chapter of this sordid story.”

The report takes specific issue with the way Goldman Sachs touted investments to clients on one end but bet against them on the other. A similar accusation against Goldman by the SEC lead to a $550 settlement last year, but Levin and his team don’t think that punishment fits the crime. From the report:

When Goldman Sachs realized the mortgage market was in decline, it took actions to profit from that decline at the expense of its clients.  New documents detail how, in 2007, Goldman’s Structured Products Group twice amassed and profited from large net short positions in mortgage related securities.  At the same time the firm was betting against the mortgage market as a whole, Goldman assembled and aggressively marketed to its clients poor quality CDOs that it actively bet against by taking large short positions in those transactions.

New documents and information detail how Goldman recommended four CDOs, Hudson, Anderson, Timberwolf, and Abacus, to its clients without fully disclosing key information about those products, Goldman’s own market views, or its adverse economic interests.  For example, in Hudson, Goldman told investors that its interests were “aligned” with theirs when, in fact, Goldman held 100% of the short side of the CDO and had adverse interests to the investors, and described Hudson’s assets were “sourced from the Street,” when in fact, Goldman had selected and priced the assets without any third party involvement.

New documents also reveal that, at one point in May 2007, Goldman Sachs unsuccessfully tried to execute a “short squeeze” in the mortgage market so that Goldman could scoop up short positions at artificially depressed prices and profit as the mortgage market declined.

This isn’t the first time Levin is gunning for Goldman. Back in April 2010, the Senator had a memorable back-and-forth with a Goldman executive during a testimony where the two discussed a “shitty deal” the firm was selling to clients.

In fact, Levin is referred to that very testimony yesterday saying he doesn’t think Goldman executives were being truthful about its activity, and that he would refer the testimony to the Department of Justice and the Securities and Exchange Commission for possible criminal investigations.

“In my judgment, Goldman clearly misled their clients and they misled the Congress,” he said.

Goldman isn’t alone in feeling Levin’s wrath though. The report also points to Deutsche Bank AG (DB) saying the Frankfurt-based company created a $1.1 billion CDO with assets that its traders referred to as “crap” and “pigs” but then attempted to sell “before the market falls off a cliff.”

Not even credit rating agencies are spared in this report which concluded that “the most immediate cause of the financial crisis was the July 2007 mass ratings downgrades by Moody’s and Standard & Poor’s that exposed the risky nature of mortgage-related investments that, just months before, the same firms had deemed to be as safe as Treasury bills.”

Here’s more:

Internal emails show that credit rating agency personnel knew their ratings would not “hold” and delayed imposing tougher ratings criteria to “massage the … numbers to preserve market share.”  Even after they finally adjusted their risk models to reflect the higher risk mortgages being issued, the firms often failed to apply the revised models to existing securities, and helped investment banks rush risky investments to market before tougher rating criteria took effect.

They also continued to pull in lucrative fees of up to $135,000 to rate a mortgage backed security and up to $750,000 to rate a collateralized debt obligation (CDO) – fees that might have been lost if they angered issuers by providing lower ratings.  The mass rating downgrades they finally initiated were not an effort to come clean, but were necessitated by skyrocketing mortgage delinquencies and securities plummeting in value.  In the end, over 90% of the AAA ratings given to mortgage-backed securities in 2006 and 2007 were downgraded to junk status, including 75 out of 75 AAA-rated Long Beach securities issued in 2006.

When sound credit ratings conflicted with collecting profitable fees, credit rating agencies chose the fees.

Among the 19 recommendations from the panel on how to handle the problems is one suggestion that asks the SEC to rank credit rating agencies according to the accuracy of their ratings.

At this stage, do we think the SEC can handle that?

Source:  Forbes

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Report: Big Profits Drove Faulty Ratings at Moody’s, S&P | McClatchy Newspapers

By Kevin G. Hall

Analysts who reviewed complex mortgage bonds that ultimately collapsed and ruined the U.S. housing market were threatened with firing if they lost lucrative business, prompting faulty ratings on trillions of dollars worth of junk mortgage bonds, a Senate report said Wednesday.The 639-page report by the Senate Permanent Subcommittee on Investigations confirms much of what McClatchy first reported about mismanagement by credit ratings agencies in 2009.

Credit rating agencies are supposed to provide independent assessments on the quality of debt being issued by companies or governments. Traditionally, investments rated AAA had a probability of failure of less than 1 percent.

But in collusion with Wall Street investment banks, the Senate report concludes, the top two ratings agencies — Moody’s Investors Service and Standard & Poor’s — effectively cashed in on the housing boom by ignoring mounting evidence of problems in the housing market.

“Instead of using this information to temper their ratings, the firms continued to issue a high volume of investment-grade ratings for mortgage backed securities,” the report said.

Profits at both companies soared, with revenues at market leader Moody’s more than tripling in five years. Then the bottom fell out of the housing market, and Moody’s stock lost 70 percent of its value; it has yet to fully recover. More than 90 percent of AAA ratings given in 2006 and 2007 to pools of mortgage-backed securities were downgraded to junk status.

Wednesday’s report provided greater detail about the behavior of Brian Clarkson, the president of Moody’s at the time of his departure in mid-2008, when the financial crisis was in full bloom.

Clarkson rose from the head of Structured Finance, which rated complex bonds backed by U.S. mortgages, to president of the company. His rise paralleled the decline in ratings quality. He has refused to talk to McClatchy or other news organizations, and was scheduled to testify last year before the Financial Crisis Inquiry Commission but was rushed to the hospital with a kidney stone.

Analysts had confided to McClatchy that Clarkson bullied and threatened them as he rose up the ranks, and the Senate report details that in numerous emails. One email dating to 2003 shows Clarkson suggesting the need to “refine our approach” to keep pace with competitors “easing their standards to capture (market) share.”

Similarly, an S&P employee in an August 2006 email described his company’s cozy relationship with Wall Street banks this way: “They’ve become so beholden to their top issuers for revenue they have all developed a kind of Stockholm syndrome…”

Stockholm syndrome is the bond a kidnapping victim feels with captors.

Source:  McClatchy Newspapers

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Guerrilla Hoarding | Ludwig von Mises Institute

By Wendy McElroy

focuses upon people whose “inability to part with their belongings is so out of control that they are on the verge of a personal crisis”; like drug addicts, they require an intervention. The vilification of hoarders as mentally ill, child-endangering animal abusers is in full swing.

What is this vile and dangerous thing called hoarding? The noun “hoard” is defined as “a store of money or valued objects, typically one that is secret or carefully guarded.” The verb means to “save up as for future use.” In common usage, anyone who stores more of a good than their neighbors do is often viewed as a “hoarder.”

A common example of hoarding is stocking up on durable grocery items — such as canned goods, rice, or pasta — when they are on sale, so that your family has a year’s supply of staples in the house. In rural areas, this is known as “keeping a good pantry.”

Historically, governments have frowned upon hoarding. Especially in bad economic times, stigmatizing the hoarder for “causing” high prices or shortages because he buys more than his “share” serves a useful political purpose. They divert attention away from government policies, such as tariffs, that are the true cause of empty shelves and high prices. By stirring up resentment toward neighbors who own one more can of peas than you do, politicians avoid the full and just brunt of public anger.

In times of economic crisis, when governments flirt with rationing and price controls, the frown can turn into a scowl; laws against hoarding are then passed and goods are sometimes confiscated. The most notorious confiscation in America came in 1933 when President Franklin D. Roosevelt signed Executive Order 6102, ostensibly as a measure to combat the Great Depression. The order commanded the American people (with a few exceptions) to relinquish all but a still-permitted $100 worth of gold coins, bullion, and certificates to the Federal Reserve in exchange for a payment of $20.67 per troy ounce. Less than a year later, the government raised the trade rate to $35 per troy ounce. Thus, the government reaped huge profits at the expense of private investors and savers — a.k.a. hoarders of gold.

Hoarding, like any other human activity, can become obsessive. But in its common form, hoarding is nothing more than preparing for the future by laying aside a store of items you and your family may need. This is an especially valuable practice during economic instability, when necessary supplies can become scarce or suddenly double in price.

The Austrian investment counselor Jack Pugsley once explained another perspective on hoarding: it is an investment. A low-income family may not be able to afford precious metals, but they can afford to invest in dry or canned consumables. Last year, with some frequency, my grocery store sold a 900-gram package of pasta for 99¢. With wheat shortages, and with the American government diverting almost 30 percent of corn crops into producing ethanol, food products dependent on grain have skyrocketed. The same package of pasta now regularly costs $2.99. If a struggling family bought 60 packages of the 99¢ pasta for a future consumption of one package a week, then their hoarding would have knocked perhaps $100 off their grocery bill. By consistently buying more than they immediately need of bargain items, the family can build a solid pantry to sustain them through unemployment, inflation or scarcity.

Unfortunately, during economic crises, the government also acquires an interest in hoarding — specifically, in punishing the hoarder as unpatriotic. A historical example is the Food and Fuel Control Act, which became law in 1917, during World War I; the acts official name was “An Act to Provide Further for the National Security and Defense by Encouraging the Production, Conserving the Supply, and Controlling the Distribution of Food Products and Fuel.” In short, the government became a food dictator, and anyone possessing more than a 30-day supply of food (which was considered reasonable by food administrator Herbert Hoover) could be arrested.

The May 30, 1918, New York Times carried the headline, “Navy Man Indicted for Food Hoarding.” It reported on a man who had invested his wife’s inheritance in a year’s food for storage; and so they were held on a $3,000 bail each. The food was confiscated.

The navy man’s fate is a cautionary tale in more than one way. The store of food for his family was discovered because a grocer and neighbors informed upon him. Thus, a sad corollary to the wisdom of hoarding food for your family is the need to do so with discretion. This is sad, because the natural impulse of people in a community is to assist those in need. Measures like the Food and Fuel Control Act mean that sharing food with a neighbor who has hungry children is no longer simply a gesture of compassion and generosity; such government acts make sharing into a danger to your safety and your own children’s well-being.

There is still time to hoard the items upon which your family depends. Prices are rising, to be sure, but the full force of inflation and shortages is probably several months in the future. Hoard now; hoard quietly.

Source: Ludwig von Mises Institute

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Foreign Banks Tapped Feds Secret Lifeline Most at Crisis Peak | Bloomsberg

By Bradley Keoun and Craig Torres

U.S. Federal Reserve Chairman Ben S. Bernanke’s two-year fight to shield crisis-squeezed banks from the stigma of revealing their public loans protected a lender to local governments in Belgium, a Japanese fishing-cooperative financier and a company part-owned by the Central Bank of Libya.

Dexia SA (DEXB), based in Brussels and Paris, borrowed as much as $33.5 billion through its New York branch from the Fed’s “discount window” lending program, according to Fed documents released yesterday in response to a Freedom of Information Act request. Dublin-based Depfa Bank Plc, taken over in 2007 by a German real-estate lender later seized by the German government, drew $24.5 billion.

The biggest borrowers from the 97-year-old discount window as the program reached its crisis-era peak were foreign banks, accounting for at least 70 percent of the $110.7 billion borrowed during the week in October 2008 when use of the program surged to a record. The disclosures may stoke a reexamination of the risks posed to U.S. taxpayers by the central bank’s role in global financial markets.

“The caricature of the Fed is that it was shoveling money to big New York banks and a bunch of foreigners, and that is not conducive to its long-run reputation,” said Vincent Reinhart, the Fed’s director of monetary affairs from 2001 to 2007.

Commercial Paper

Separate data disclosed in December on temporary emergency- lending programs set up by the Fed also showed big foreign banks as borrowers. Six European banks were among the top 11 companies that sold the most debt overall — a combined $274.1 billion — to the Commercial Paper Funding Facility.

Those programs also loaned hundreds of billions of dollars to the biggest U.S. banks, including JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), Citigroup Inc. and Morgan Stanley. (MS)

The discount window, which began lending in 1914, is the Fed’s primary program for providing cash to banks to help them avert a liquidity squeeze. In an April 2009 speech, Bernanke said that revealing the names of discount-window borrowers “might lead market participants to infer weakness.”

The Fed released the documents after court orders upheld FOIA requests filed by Bloomberg LP, the parent company of Bloomberg News, and News Corp.’s Fox News Network LLC. In all, the Fed released more than 29,000 pages of documents, covering the discount window and several Fed emergency-lending programs established during the crisis from August 2007 to March 2010.

Public Outrage

“The American people are going to be outraged when they understand what has been going on,” U.S. Representative Ron Paul, a Texas Republican who is chairman of the House subcommittee that oversees the Fed, said in a Bloomberg Television interview.

“What in the world are we doing thinking we can pass out tens of billions of dollars to banks that are overseas?” said Paul, who has advocated abolishing the Fed. “We have problems here at home with people not being able to pay their mortgages, and they’re losing their homes.”

David Skidmore, a Fed spokesman, declined to comment. Fed officials have said all the discount window loans made during the worst financial crisis since the 1930s have been repaid with interest.

The Monetary Control Act of 1980 says that a U.S. branch or agency of a foreign bank that maintains reserves at a Fed bank may receive discount-window credit.

“Our job is to provide liquidity to keep the American economy going,” Richard W. Fisher, president of the Federal Reserve’s regional bank in Dallas, told reporters today. “The loans were all paid back and they were well-collateralized.”

Wachovia’s Loans

Wachovia Corp. was the only U.S. bank among the top five discount-window borrowers as the crisis peaked.

The company, based in Charlotte, North Carolina, borrowed $29 billion from the discount window on Oct. 6, in the week after it almost collapsed, the data show. Wachovia agreed in principle to sell itself to Citigroup Inc. on Sept. 29, before announcing a definitive agreement to sell itself to Wells Fargo & Co. (WFC) on Oct. 3. The Wells Fargo deal closed at the end of 2008.

Wells Fargo spokeswoman Mary Eshet declined to comment on Wachovia’s discount-window borrowing.

Bank of Scotland Plc, which had $11 billion outstanding from the discount window on Oct. 29, 2008, was a unit of Edinburgh-based HBOS Plc, which announced its takeover by London-based Lloyds TSB Group Plc in September 2008.

The borrowings in 2008 didn’t involve Lloyds, which hadn’t completed its acquisition of HBOS at the time, said Sara Evans, a spokeswoman for the company, which is now called Lloyds Banking Group Plc. (LLOY)

‘Historic’ Use

“This is historic usage and on each occasion the borrowing was repaid at maturity,” Evans said. “The discount window has not been accessed by the group since.”

Other foreign discount-window borrowers on Oct. 29, 2008, included Societe Generale (GLE) SA, France’s second-biggest bank; and Norinchukin Bank, which finances and provides services to Japanese agricultural, fishing and forestry cooperatives. Paris- based Societe Generale borrowed $5 billion that day, and Tokyo- based Norinchukin borrowed $6 billion.

Jim Galvin, a spokesman for Societe Generale, declined to comment.

“We used it in concert with Japanese and U.S. authorities in the purpose of contributing to the stabilization of the market,” said Fumiaki Tanaka, a spokesman at Norinchukin.

Bank of China

Bank of China, the country’s oldest bank, was the second- largest borrower from the Fed’s discount window during a nine- day period in August 2007 as subprime-mortgage defaults first roiled broader markets. The Chinese bank’s New York branch borrowed $198 million on Aug. 17 of that month.

“It was just routine borrowing,” said Dale Zhu, head of the Bank of China New York branch’s treasury.

Two Deutsche Bank AG divisions borrowed $1 billion each, according to a document released yesterday.

Arab Banking Corp., then 29 percent-owned by the Libyan central bank, used its New York branch to get at least 73 loans from the Fed in the 18 months after Lehman Brothers Holdings Inc. collapsed. The largest single loan amount outstanding was $1.2 billion in July 2009, according to the Fed documents.

The foreign banks took advantage of Fed lending programs even as their host countries moved to prop them up or orchestrate takeovers.

Dexia received billions of euros in capital and funding guarantees from France, Belgium and Luxembourg during the credit crunch.

‘High-Quality’ Collateral

The Fed loans were “secured by high-quality U.S. dollar municipal securities,” and used only to fund U.S. loans, bonds and other financial assets, Ulrike Pommee, a spokeswoman for the company, said in an e-mail.

“The Fed played its role as central banker, providing liquidity to banks that needed it,” she said, adding that Dexia’s outstanding balance at the Fed has been reduced to zero. “This information is backward-looking.”

Depfa was taken over in October 2007 by Hypo Real Estate Holding AG, which in turn was seized by the German government in 2009.

“Since the end of May 2010, Depfa is not making use of the Federal Reserve Discount Window,” Oliver Gruss, a spokesman for the bank, said in an e-mailed statement. He declined to comment further.

Dollar Assets

Many foreign banks own large pools of dollar assets — bonds, securities and loans — funded by short-term borrowings in money markets. The system works when markets are calm, said Dino Kos, former executive vice president at the New York Fed in charge of open-market operations. In times of stress, banks can be subject to sudden liquidity squeezes, he said.

“They are playing with fire,” said Kos, a managing director at Hamiltonian Associates Ltd. in New York, an economic research firm. “When the market dries up, and they can’t roll over their funding — bingo, you have a liquidity crisis.”

The potential for dollar shortages remains. As the Greek fiscal crisis roiled financial markets last year, the Fed had to open swap lines with the European Central Bank, the Swiss National Bank, the Bank of England and two other central banks to make more dollars available around the world. That move was partially the result of U.S. money market funds shrinking their exposure to European bank commercial paper.

Bloomberg News is posting the Fed documents here for subscribers to the Bloomberg Professional Service as well as online at http://www.bloomberg.com.

To contact the reporters on this story: Bradley Keoun in New York at bkeoun@bloomberg.net; Craig Torres in Washington at ctorres3@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

Source:  Bloomberg

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The Idea of Enemies is Killing Us | Baltimore Chronicles

By Deb Reich

“In a globally internetworked world, we are all going to learn to work together because there’s no viable alternative.”

Consider this: The “enemies paradigm” and the perspective it represents are obsolete. We humans on this Earth are in the process of moving onward, beyond that worldview, into a different era. In the new era, there will still be groups of people we may see as our adversaries, but they will not be enemies. There will still be bad problems, but we will solve them more ably, working together with the people we used to think of as our enemies. In a globally internetworked world, we are all going to learn to do this because there’s no viable alternative. It begins with adopting a different mental map.

The organizing principle of the new mental map is the idea of No More Enemies. It belongs to everyone on the planet. It’s a simple idea, really. The concept of “enemies” is no longer serving humanity. It has, demonstrably, become very destructive and is overdue for retirement. The old enemies-oriented worldview is being displaced by emergent new paradigms of partnership, shared responsibility, and co-evolving. Humanity is struggling to redesign itself, using new tools. New technologies of medical imaging, for instance, give us a crucial biofeedback loop to evaluate the impact of our own thoughts and cultural habits on our health, our behavior, our society, our planet. That gives us new information to help us co-redesign our way of understanding and interacting with our world. The evidence is there in plain sight…we just have to connect the dots.

“We, the people, are not the problem. The problem is the paradigm: the enemies paradigm.”

As a Jewish American Israeli woman who has spent years living and working with Muslim and Christian Arabs in Israel/Palestine, I know what I’m talking about. We, the people, are not the problem. The problem is the paradigm: the enemies paradigm.

Many of us have already discarded the enemies-based map of reality. We know that we have like-minded partners elsewhere in the Middle East, and far beyond. Our shared mantra, from Rela Mazali: We refuse to be enemies. We are trying to swing the regional momentum away from violence and fear and toward pluralism and equality. But history, the educational system, industry, army, religious extremism and government are all against us (so far). What we mainly have is our vision of a different way: No More Enemies.

“In Israel, successive governments have built a gigantic wall of brutality in the vain hope of protecting the folks on one side from the aspirations on the other side: never a sustainable strategy.”

In Israel, successive governments have built a gigantic wall of brutality in the vain hope of protecting the folks on one side from the aspirations on the other side: never a sustainable strategy. Our wall is like all such walls: constructed and funded by successive regimes, meant to keep at bay those whom the authorities wish to exclude, and to intimidate those who dissent. This wall is made of cement and electronic sensors and barbed wire, but the mortar binding it is made of powerful existential anxieties, of memories of historical suffering and injustice, and of continuing bloodshed mixed with fear, fear, fear.

And now—inevitably—there is this global picket line that has sprung up around Israel in response. BDS (boycott, divestment, sanctions), the Palestinian-led boycott movement is a call for equal rights for every person in this land and is supported worldwide by hundreds of thousands of people across a broad political spectrum. Most of them can agree on little else; oppression often makes strange bedfellows. Although not a boycott enthusiast, I have publicly supported this one as a nonviolent way of leveraging policy change here—because the alternative (business as usual) will be much worse for everyone concerned, long-term.

Clearly, things in Israel and Palestine have gone horribly wrong over the years. There has been heroism, and barbarism, on every side (all exhaustively documented). A vast river of self-righteous rhetoric has flowed under the bridge. None of that has mended what’s wrong here, and the situation is surely not going to fix itself. By rejecting Wallmania and working together, however, we can transform this scenario and get a life for us and our neighbors. The dissidents next door are equally committed. Maybe you’ve seen some of them on TV recently. This is deep change coming, which is why it evokes a backlash. We say: No fear. No more enemies.

“Palestinian nonviolence is not new.”

Did you know that the nonviolent Palestinian independence movement is not new? It is not new but it has been successfully smothered for decades, both by the somewhat discredited romance with “armed struggle” and by Israeli government repression. No longer. As its leaders are jailed, harassed, and even killed, this movement only grows stronger. In recent years, significant segments of Palestinian civil society, including young people, have indeed renounced violence. They have renounced it in English, Hebrew, and Arabic. They have done so sincerely, authentically, publicly, and repeatedly until, right now, there may be more Palestinians than Israelis deeply committed to nonviolent change. And—despite the militants who get all the headlines—the Palestinian people’s commitment to nonviolence seems to be increasing, week by week, while the trend in Israel, sadly, seems to be going the other way.

“The world finally seems to be waking up to the fact that justice for Palestinians is an urgent existential necessity—for Palestinians, for Israelis, maybe for the planet.”

The Israeli elite (like other entrenched elites hereabouts) is frightened, and that is dangerous. It’s important for people abroad not to demonize ordinary Israelis now, now that the world finally seems to be waking up to the fact that justice for Palestinians is an urgent existential necessity—for Palestinians, for Israelis, maybe for the planet. The Israeli people need your tough love, not your condemnation. The Israeli legislature, seemingly lacking any imaginative scheme for a different and more constructive shared future with the neighbors, is working hard to criminalize domestic dissent here. And the harder it works to do that, the more unequivocally we who dissent are obliged to declare where we stand.

We stand with all our Palestinian and Israeli sisters and brothers who refuse to be enemies. We stand with the Jewish, Christian and Muslim traditions of compassion. We stand with the peaceful protestors and nonviolent demonstrators and former combatants who have laid down their guns and are risking their lives for a different future, unarmed. We stand with Palestinians in refugee camps and in the diaspora who have waited for two or three generations now, for a chance to come back home. They are people, people like us, and they are homesick. Why do so many Israelis and Jews abroad insist on seeing them as a threat? They are a huge, untapped resource of vibrant human energy waiting to be allowed the chance to contribute to a more beautiful, more egalitarian, and more sustainable community in Israel/Palestine.

The song humanity needs to be singing now, in our region and elsewhere, is called No More Enemies. The history it will celebrate has only just begun to unfold. This is the new Exodus. As it moves us out of the old landscape of enemies and into new and unknown territory, maybe the right troubadour will appear who can find the words and melody for this song, and help us sing it. In harmony.

Source: Baltimore Chronicle

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Cuccinelli’s Health Care Challenge | New Republic

By Joshua Hersh

The day that President Obama’s Affordable Care Act was signed, March 23, 2010, was also the day that the first challenges to the law were filed in federal court. Back then, the notion that health care reform could be overturned seemed remote. For one thing, it would require the Supreme Court to abandon decades of precedent. But nearly as big an obstacle, it seemed, was that the filer of the first suit to move forward was Kenneth T. Cuccinelli II, the attorney general of Virginia, a politician whose seven-year stint in the state legislature had earned him the nicknames “Crazy Cuccinelli” and “Kook-inelli.”

After becoming Virginia’s top lawyer in 2010, Cuccinelli altered the state seal to cover the exposed breast of the Roman goddess Virtus. He has also questioned whether Obama was born in the United States and suggested he might not register the youngest of his seven children for a Social Security number. (“A lot of people are considering that now, because it is being used to track you,” he told a supporter.) The Washington Post‘s editorial board has twice used the word “embarrass” to describe his effect on the commonwealth.

At the outset, Cuccinelli’s health care lawsuit seemed like exactly the sort of intemperate move one would expect from an upstart Tea Party politician who is more concerned with public displays of disaffection than results. And health care reform was far from Cuccinelli’s only gripe. He has also sued the Environmental Protection Agency over its power to regulate greenhouse gases and investigated a former climate-change researcher at the University of Virginia (UVA) for fraud. Last March, he notified state-run universities that their non-discrimination policies could not extend to gay students.

One year on, however, Cuccinelli’s health care challenge no longer seems so far-fetched. Last December, Judge Henry Hudson of Virginia’s Eastern District Court sided with Cuccinelli and ruled that the individual mandate was unconstitutional. Seven weeks later, in Florida, a similar lawsuit filed by more than two dozen attorneys general and governors also successfully challenged the law. Now, even the most determined naysayers have been forced to acknowledge the case’s viability. And Ken Cuccinelli, once easily derided as a mere troublemaker, has become something of a hero to conservative opponents of health care reform.

Long before Cuccinelli became a politician, it was clear that he was drawn to procedure and order, to clear delineations of right and wrong. He served on his college’s judiciary committee, and, at George Mason School of Law in Arlington, he ran for honor board chairman on a platform of firm retribution for violators. Fellow board members recall that he took his duties seriously and didn’t hesitate to schedule board meetings on weekends. In 1994, Cuccinelli oversaw the investigation of a student accused of interfering with the publication of a law journal. The inquiry dragged on for months; eventually the student refused to attend his own hearings and was expelled. While several colleagues on the board describe his management of the matter as fair, years later, something about the investigation troubles them. Maybe, they say, had another personality type been in charge, the case could have been resolved without ending the student’s law career. “It was all pretty black and white to [Cuccinelli],” one board member told me. “He was uncomfortable in the gray.” (Cuccinelli disputes this characterization. “I bent over so far backwards to accommodate him,” he says of the student.)

During the 1990s, Cuccinelli was a familiar sight on Northern Virginia’s GOP scene. But, when he first ran for the state Senate in 2002, his candidacy seemed so unlikely that a number of Democrats voted for him (Virginia has open primaries), thinking he’d be easy to defeat. When Cuccinelli went on to win the primary, the Republican vacating the seat, Warren Barry, backed his opponent. “I don’t want to make a habit of endorsing Democrats,” Barry said at the time, “but, in this case, the GOP picked someone whose thinking is so ancient, he would be an embarrassment to Northern Virginia.” Cuccinelli won by about 2,000 votes. It wouldn’t be the first time his detractors had underestimated him.

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When Private Money Becomes a Felony Offense | New York Sun

By Seth Lipsky

The next chapter in the struggle over sound money may be the case of a newly minted felon named Bernard von NotHaus. Mr. von NotHaus was convicted this month of counterfeiting money by issuing silver coins called Liberty Dollars. His company’s website says it’s been taken down by court order, and absent a successful appeal he could spend years in jail.

Mr. von NotHaus was convicted under a section of the United States Code that makes it a crime to manufacture or pass “any coins of gold or silver or other metal, or alloys of metals, intended for use as current money, whether in the resemblance of coins of the United States or of foreign countries, or of original design.” The law was enacted during the Civil War, soon after the Union began issuing the paper scrip known as greenbacks.

It is too soon to say what Mr. von NotHaus’s grounds of appeal will be, but it is not too soon to say that his case will be one to watch at a time when so many believe our economic troubles are tied to the fact that the dollar has become a fiat currency, and when leaders world-wide are calling for a new reserve currency.

So alarming has been the collapse of the dollar that the legislatures in as many as a dozen American states are considering using their authority—under Article 1, Section 10 of the Constitution—to make legal tender out of gold and silver coins. Lest the ghost of Friedrich Hayek or any other advocate of privately issued money get any bright ideas, however, the von NotHaus verdict will stand as a warning.

The warning is contained in paragraph 33 of the indictment handed up against Mr. von NotHaus in a courtroom at Statesville, N.C. It said:

“Article 1, Section 8, Clause 5 of the United States Constitution delegates to Congress the power to coin money and to regulate the value thereof. This power was delegated to Congress in order to establish a uniform standard of value. Along with the power to coin money, Congress has the concurrent power to restrain the circulation of money not issued under its own authority, in order to protect and preserve the constitutional currency for the benefit of the nation. Thus, it is a violation of law for private coin systems to compete with the official coinage of the United States.”

Yet a curious thing happened in the courthouse on the day before the jury went to deliberate. According to Aaron Michel, Mr. von NotHaus’s attorney, the judge granted Mr. Michel’s request to delete paragraph 33 from the indictment.

“That is a statement of law that, if it were to be put before the jury at all, should have been a matter of discussion between the parties as to the court’s instructions to the jury on the law,” Mr. Michel quoted the judge, Richard Voorhees, as saying. “In any event, it does not appear to the court to be a factual predicate that is supported by the evidence in the case.”

The judge then asked one of the federal prosecutors, Jill Westmoreland Rose, whether she had “any comment on that.” “No, Your Honor,” Ms. Rose replied, according to Mr. Michel. So the copy of the indictment that went to the jury contained white space where paragraph 33 once was.

Yet after Mr. von NotHaus was convicted on March 18, the government issued a press release trumpeting the verdict and repeating the part of the original indictment that the judge had struck out. The release also went further, asserting that Congress’s power to coin money under the Constitution was also meant to “insure a singular monetary system for all purchases and debts in the United States, public and private.”

It again asserted that it is a violation of federal law for individuals—such as, it added, Mr. von NotHaus—”to create private coin or currency systems to compete with official coinage and currency of the United States.” So much for the judge’s view that the paragraph was unsupported by evidence in the case. The U.S. Attorney’s office did not respond to a request for comment.

To be sure, there are advocates of sound money who believe that, while Mr. von NotHaus’s scheme may have been visionary in principle, he made some mistakes under American law. He put a “$” sign on the silver he was issuing, and he denominated the units in dollars (albeit Liberty Dollars, or Liberties). Such facts may have helped convince the jury to find him guilty of counts involving the counterfeiting of coins.

It may also be, however, that the government has overreached in the von NotHaus case. It is indisputably clear that the power to coin money and regulate its value is one that the Constitution delegates to Congress. It’s an enumerated power, and one of the big ones. It’s also clear that the Constitution bars states from making coins other than gold or silver legal tender. But it is not clear that there is a constitutional basis or a logic for prohibiting individuals from making and selling pieces of gold and silver and using them, on a voluntary basis, as money—i.e., to “compete with” the official coinage of the U.S.

Certainly it’s a loser’s game to suppress private money that is sound in order to protect government-issued money that is unsound. For, as was once said by the same Abraham Lincoln who brought in the greenback to finance the great cause of the Union, you can’t fool all of the people all of the time.

Source:  New York Sun

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CUBA: Preparing for Perestroika | The Daily Reckoning

By Douglas Clayton

Dividing Old Havana from Chinatown is Cuba’s Capitolio Nacional, a monumental edifice with a fateful past. El Capitolio was conceived during the Roaring ’20s, when the island led the world in sugar exports and the future seemed sky blue.

President Gerardo Machado dreamed of turning Cuba into the Switzerland of the Americas. He decided that his 4 million countrymen needed a domed capitol building even taller and more ornate than the one he toured in Washington. So Cuba’s Congress dutifully poured 3% of the country’s GDP into their new home. (This would be akin to the US Congress spending $420 billion for a new office today, but let’s not give them any ideas…)

It took 8,000 skilled Cuban laborers just three years to complete El Capitolio, which featured gilt ceilings, a giant diamond embedded into the pristine marble floor and the world’s third-largest indoor statue. However, the showy project couldn’t have been more poorly timed. Work completed in 1929, just as America’s stock market crashed and the Great Depression unfolded.

The Smoot-Hawley tariffs crushed Cuban sugar prices by 74%. When El Capitolio’s ribbon was cut in 1931, Cuba’s economy lay in tatters. Machado was forced out of office, and his dream building would perform congressional service for only 28 years before Fidel Castro’s revolutionaries swept into Havana and opted for more austere premises. I don’t need to recite the history from here, which you probably well know.

The winds of change are gathering in Cuba, though. Since Fidel Castro’s health nearly failed in 2006, power has passed to his younger brother, Raul Castro. Raul has quietly reshuffled more than 30 cabinet members to prepare his party and people for a sweeping economic policy overhaul – Perestroika al Cubano. Even the semi-retired Fidel seems to have glumly accepted that change is inevitable, candidly admitting to a visiting US journalist that “the Cuban model doesn’t even work for us anymore.”

The global economic crisis whacked Cuba hard. Venezuela cut back on its largesse as its own economy worsened. Tourism and remittances softened, while nickel export prices tanked. Furthermore, three severe hurricanes left a wake of destruction in 2008. Unable to service Cuba’s estimated $21 billion foreign debt, and running out of generous leftist patrons to hit up, Raul Castro has, apparently, decided he has little choice but to pry open Cuba’s economy.

Castro’s wild card is Cuba’s oil and gas reserves. The island currently produces 60,000 bbl a day. But its US-facing northern waters hold an estimated 5-20 billion barrels of oil and 20 trillion cubic feet of natural gas. (Note: This compares with 29 billion barrels of oil reserves in the entire US.) Accessing this undersea oil requires the sophisticated drilling technology the US excels in. But as long as sanctions remain in place, the US oil majors are excluded from that bonanza. Amidst the applause of oil industry lobbyists, the dance for reengagement has begun, with both partners taking some unprecedented steps.

Raul Castro has issued a far-reaching five-year road map for Cuba’s future economic reform. The proposed changes would put Cuba on a very similar path to that taken by China in the 1980s and Vietnam in the 1990s. Here are some of the ideas: permit real estate transactions amongst Cubans, merge the two-tier currency system, close down inefficient state enterprises, decentralize state ownership, facilitate private ownership of businesses, distribute idle land to farmers, open state-owned wholesale markets and further encourage foreign investment – particularly in tourism.

In recent months, some planned reforms have already been implemented in an effort to delay Cuba’s impending insolvency. Costly subsidies on sugar and personal care products are being scaled back. The government announced plans to shed 500,000 state workers (that’s 10% of the country’s government work force in a country where 85% of workers work for the state) and guide them somehow into the private sector.

Cubans are being encouraged to grow and sell their own fruits and vegetables. The government is inviting foreign investors to develop 10 golf course estates in Cuba, with a new law allowing 99-year land leases to foreign buyers of plots in such projects. In the old days of Fidel’s revolution, such policies were unthinkable.

So what is the potential for a liberalized Cuban economy?

Just look 90 miles across the straits to Florida. A million Cuban- Americans call Miami home. Cuba has 60% of Florida’s population and 80% of its landmass, but greater natural resources and a much longer coastline, so one might conclude that the two are of comparable overall potential.

Perhaps to underscore their similarities, remember the fact that England and Spain cleanly swapped the two in 1763. Today, Florida’s economy is 12 times larger than Cuba’s. One reason is that Florida gets 20 times as many tourists as Cuba, plus an inflow of affluent retirees.

When the US government stops restricting its citizens from traveling to Cuba, the island will become an instant tourist magnet. Offering short flights, sunny beaches, cool music, “old world” architecture and cheap surgery, Cuba should have no problem drawing several million American tourists a year, as further-away destinations like Costa Rica have done.

Should reforms become comprehensive enough, agriculture seems an obvious investment play: Half the land is arable, labor is cheap and rain is plentiful. Cuba’s once-vaunted sugar industry stands in disarray, with 80% of the old mills shut down. However, today’s high sugar prices provide ample incentive to revive the sector, along with other traditional crops such as cigar tobacco.

Despite its long coastline, fisheries and aquaculture remain largely overlooked. Cuba is a world-class producer of nickel, but other mineral deposits remain underexploited. And then there’s the oil. The entire power system needs to be updated, financial services developed, retailing expanded – the opportunities seem endless.

Beyond the subsidized basics, most consumer goods have to be imported, and imports draw heavy duties. Telecom services are costly due to government monopolization and inefficiency. The list goes on. In this environment, it is tough for most Cubans to get by unless they receive remittances, tourist gratuities or tea money.

All in all, we eagerly await the implementation of Cuba’s economic reforms. As this process unfolds, Cuba could transform into one of the world’s most attractive frontier investment destinations. America has a long track record of turning bitter rivals into productive partners (a recent example being Vietnam), and re-engagement with Cuba could be one of Obama’s most notable foreign policy legacies.

Some frontier investors are not waiting for that and are already investing in Cuba. While 100% foreign ownership is permitted, most investors enter joint ventures with Cuban state enterprises, which typically contribute land, labor and sometimes capital. Over 250 such joint ventures exist, mostly for specific sectors or projects. Investments are made in foreign currency, eliminating exchange rate issues, and there are no restrictions on capital repatriation. Corporate income tax is 30% for joint ventures and 35% for wholly owned foreign companies, but tax holidays of five-seven years are available.

A few Cuba-focused investment groups have been established that non-US investors can access. Canada-listed Sherritt Group is a major player in Cuban nickel mining and, formerly, telecoms. A private investment group backed by European investors, Coral Capital has restored Havana’s historic Saratoga Hotel, which was recently ranked by Conde Nast as the 16th best hotel in the world. Coral is now planning a number of golf course, marina, housing and hotel projects, as is Leisure Canada, a Canada-listed investment vehicle.

Source: The Daily Reckoning