Thank Ghu It’s Freitag

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‘Quantitative Easing’: The Hidden Government Subsidy for Banks

This video went up on Zero Hedge yesterday, I believe. In the first minute you will want to throw both of these little bears in a sack and drown them, but by the end they win you over. There are so many things about QE that are crazy, but there’s one thing that I’d like to point out in particular. Yes, this is a huge money-printing program with potentially disastrous inflationary consequences. And yes, the influx of all this money could easily distort markets and prices far beyond the extreme distortions we’ve already been dealing with (commodities prices shot through the roof after this latest QE round was announced). But the thing I want to focus on is the subsidy aspect of QE, pointed out in the video. QE is designed to buy Treasuries and other assets, but the Fed does not simply go out and buy Treasuries itself; it does it through its primary dealers, who include of course banks like Goldman, Sachs. The Fed all but announces when it’s going to be doing this buying and in what quantity, which allows the banks to buy up this stuff at lower prices ahead of time and then sell it to the Fed at inflated cost.

Even forgetting about the obvious insider trading aspect to all of this, the official middleman status of the banks is a direct government subsidy and it is little remarked upon, even by the Tea Party crowd, which is otherwise so opposed to “welfare.” But these sorts of subsidies exist all throughout the financial services industry.

You want to take out a mortgage or a credit card; you obviously can’t get your credit from the government at 0% interest. What you do instead is you get a mortgage from a private bank at 4.7% or 5%, and that bank in turn has borrowed from the Fed at 0%. This would almost make sense if indeed these banks were legitimately providing a service for that 5% cut, i.e. if they were carefully and judiciously weighing the credit risk of applicants. But if anything these banks have been even more irresponsible (more irresponsible by far, actually) with their money than the masses of people who are now in trouble with their credit cards, mortgages, student loans, etc. They not only don’t deserve this subsidy any more than ordinary people do, they’re actually the worst possible destination for an appropriation of emergency funding, which is what this Fed money is supposed to be.

Take seven minutes and watch the video. Plan on being irate afterward. Seriously.

After you watch it, read this:

In Defense of Ben Bernanke

All in all, it looks like the nation and the world need an Economics 101 refresher. So let’s start with the basics.

The Fed’s plan is to purchase about $600 billion of additional U.S. government securities over about eight months, creating more bank reserves (“printing money”) to do so. This policy is one version of quantitative easing, or “QE” for short. And since the Fed has done QE before, this episode has been branded “QE2.”

Here’s the first Economics 101 question: When central banks seek to stimulate their economies, how do they normally do it? If you answered, “by lowering short-term interest rates,” you get half credit. For full credit, you must explain how: They create new bank reserves to purchase short-term government securities (in the U.S., that’s mostly Treasury bills). Yes, they print money.

But short-term rates are practically zero in the U.S. now, so the Fed wants to push down medium- and long-term interest rates instead. How? You guessed it: by creating new bank reserves to purchase medium- and long-term government securities.

That sounds pretty similar to garden-variety monetary policy. Yet critics are branding QE2 a radical departure from past practices and a dangerous experiment.

Saturday Morning News and Views

Good Morning Conflucians!!! There’s a lot happening in the world today. I’ll share the stories I’ve been reading, and you can add your own links in the comments.

HAITI EARTHQUAKE

The situation is very desperate in Haiti. Tensions Mount in Haiti as Situation Grows Desperate

Haiti’s capital is now devoid of a functioning police force. When the earthquake struck, it destroyed the city’s prison, allowing thousands of inmates to escape.

U.S. Secretary of State Hillary Clinton travels to Haiti Saturday to get a first-hand look at relief efforts, days after tens of thousands of people were killed, and many other left homeless.

Clinton plans to meet with Haitian President René Preval and other officials, along with members of the U.S. government team on the ground.

Clinton said she will limit her visit to the confines of the airport so as not to disrupt relief efforts. Secretary Clinton said she planned to take relief supplies with her and that later, the same aircraft will carry Americans and others being evacuated.

Haiti earthquake: President Preval says country like a war zone

Haitian President Rene Preval said: “The damage I have seen here can be compared to the damage you would see if the country was bombed for 15 days. It is like in a war.”

The 7.0-magnitude earthquake that devastated much of the hilly coastal city on Tuesday also collapsed the elegant presidential palace and his own home.

Authorities in Haiti, already the poorest nation in the Western Hemisphere, are saying they believe the death toll will be between 100,000 and 200,000 and that three-quarters of the city will need to be rebuilt.

I’ve been listening to CNN on XM radio, and I have to say I have new found respect for Sanjay Gupta. He and his CNN crew were at a hospital last night when all the UN doctors and nurses were ordered to leave because of security concerns. Gupta stayed and worked on injured people through the night, then cancelled his show this morning in order to keep working.

The anchors filling in for Gupta had Gen. Honore on–he was instrumental in the Katrina efforts. Gen. Honore said the UN needed to “suck it up” and realize that saving lives is more important than security in this critical time. He also said that dropping bundles from helicopters would be better than nothing for now. He seemed disgusted that the UN is so risk averse.

SCOTT RITTER ARRESTED IN INTERNET CHILD SEX STING

I saw this story yesterday, and I just didn’t know what to think. Well known writer and former U.N. Weapons inspector Scott Ritter was caught in a child sex sting and was arrested in November, but the news has just come out. He had been caught in a sting in 2001, and liberal bloggers blew it off as the Bush administration trying to shut Ritter up. But he was caught again a couple of years later, and again now. So apparently, the guy has been fooling around with teenage girls on the internet all this time. People are really strange.

Former Chief U.N. Weapons Inspector Scott Ritter Nabbed in Teen Sex Sting

Ex-U.N. Weapons Inspector Is Charged in Child-Sex Sting

Cop who catches perverts

Here is a blog post by Justin Raimondo after Ritter was arrested for the second time in 2003

Scott Ritter, the former UN weapons inspector who quit in 1998 and now says the U.S. is intent on manufacturing phony “evidence” of arms violations as a pretext for war, is the victim of what may be the sleaziest set-up job in recent history, a smearing so foul that it makes the Clinton crowd look like a bunch of amateurs. The news that he may have been arrested, in June 2001, as the result of an internet sex sting, in which an undercover cop posing as a sixteen-year-old girl lured him into “sex chat” over the internet, came to light in a very strange way. A local newspaper, the Daily Gazette, of Schenectady, New York, was first to pick up the dirt, which apparently came to light when an assistant district attorney was fired for settling the case and not informing the D.A. According to the Gazette:

“Police and prosecutors have declined to discuss the case, which involved at least one class B misdemeanor, because it was adjourned in contemplation of dismissal and ordered sealed by a Colonie Town Court justice. The Daily Gazette’s request for access to the arrest report was denied by the Colonie town attorney’s office, which ruled disclosure was barred under the state Freedom of Information Law.”

So the police just happened to conduct a “sex sting” operation against the one man who had exposed the lies of our war-mad rulers from the inside. On the eve of war, as hundreds of thousands protest in the streets, this staunch Republican and solid family man who has become one of the War Party’s most formidable enemies is suddenly “exposed” as a child molester.

Apparently, sometimes the person caught in a sting is actually guilty, even if he is a famous person who spoke truth to power. As I said earlier, people are strange.

MASSACHUSETTS SPECIAL ELECTION

The Democrats brought out the big guns–including Bill Clinton–for Martha Coakley yesterday, and now she seems to be embracing the Kennedy legacy that she avoided during the primary.

Martha Coakley waves as Bill Clinton hugs Rep. Jim McGovern

Coakley hopes for historic win in Kennedy seat bid

For much of her campaign, Martha Coakley steered clear of the Kennedy mystique, methodically crafting a low-key campaign to fill the late Edward Kennedy’s U.S. Senate seat the way the seasoned prosecutor would build a case in court.

But with the wheels threatening to come off the campaign and a double-digit lead eroding to a dead heat in the polls, Coakley, the state’s attorney general, is banking that a deep-seated loyalty to Kennedy among Massachusetts Democrats will be enough to propel her to victory.

Coakley has publicly accepted the endorsement of Kennedy’s widow, Vicki Kennedy, and nephew, the former U.S. Rep. Joseph Kennedy. Vicki Kennedy has also made a fundraising appeal and cut a television ad on Coakley’s behalf.

The Republicans responded by trotting out Rudy Giuliani to stump for Scott Brown: Rudy Giuliani joins Scott Brown, slams Martha Coakley on terrorism

Former New York City mayor and GOP stalwart Rudy Giuliani hammered Attorney General Martha Coakley on terrorism during a raucous campaign stop in the North End today where he revved up Scott Brown’s surging campaign.

“His election, I believe, will send a signal and I believe a very dramatic one, that we are going in the wrong direction on terrorism,” Giuliani said of Brown.

Coakley has come under fire from the opposition for comments she made about terrorists deserting Afghanistan for Pakistan and Yemen during Monday’s debate.

Coakley is opposed to President Obama’s plans to increase troop levels in Afghanistan. Brown supports the troop build-up and has sharpened his focus on terrorism in recent days

Democrats countered that Brown voted against giving financial assistance to 9/11 rescue workers.

This morning, nearly every website I’ve clicked on has Scott Brown ads at the top. His campaign has reportedly raked in $1 million per day every day this week.

Tomorrow, President Obama is coming to Massachusetts to help Coakley–at least she hopes he will help. It’s hard to know, because some of the people he needs to shore up support with are working class independents who voted for Hillary Clinton in the Massachusetts presidential primary.

OBAMA PAL CASS SUNSTEIN AND FREEDOM OF SPEECH

Here’s one more strange story. It seems that Obama’s chief of Information and Regulatory Affairs Cass Sunstein wants to stop Americans from speculating about conspiracies. Here is Joseph Cannon’s take on this story.

Legal scholar Cass Sunstein is Obama’s Administrator of the White House Office of Information and Regulatory Affairs. In 2008, he co-wrote an odd and disturbing paper on conspiracy theories, which you can read here. Here’s the gist:

The existence of both domestic and foreign conspiracy theories, we suggest, is no trivial matter, posing real risks to the government’s antiterrorism policies, whatever the latter may be.

“Government agents (and their allies) might enter chat rooms, online social networks, or even real-space groups and attempt to undermine percolating conspiracy theories by raising doubts about their factual premises, causal logic or implications for political action.

Of course, it never occurred to this nitwit that using conspiratorial methods to fight conspiracy theories is a lot like fighting a house fire by spraying it with gasoline.

Glenn Greenwald also commented on the story yesterday

In 2008, while at Harvard Law School, Sunstein co-wrote a truly pernicious paper proposing that the U.S. Government employ teams of covert agents and pseudo-“independent” advocates to “cognitively infiltrate” online groups and websites — as well as other activist groups — which advocate views that Sunstein deems “false conspiracy theories” about the Government. This would be designed to increase citizens’ faith in government officials and undermine the credibility of conspiracists. The paper’s abstract can be read, and the full paper downloaded, here.

Sunstein advocates that the Government’s stealth infiltration should be accomplished by sending covert agents into “chat rooms, online social networks, or even real-space groups.” He also proposes that the Government make secret payments to so-called “independent” credible voices to bolster the Government’s messaging (on the ground that those who don’t believe government sources will be more inclined to listen to those who appear independent while secretly acting on behalf of the Government). This program would target those advocating false “conspiracy theories,” which they define to mean: “an attempt to explain an event or practice by reference to the machinations of powerful people, who have also managed to conceal their role.”

So what are you reading?

HAVE A SPECTACULAR SATURDAY!!!!!!!!

Tuesday Mid-Morning News and Views

A confused-looking President Obama meets with NSC chief Denis McDonough about failed underwear bombing

Good Morning Conflucians!!! Dakinikat has jury duty this morning and Riverdaughter is tussling with the charts at Survey Monkey, so I’m going to get us started today with a few links to stories that interested me this morning. As always, post your own choice links in the comments.

First up, Joseph Cannon has provided more information and background on the Afghan bombing that I was speculating about yesterday. My head is spinning after reading that, but I plan to keep following this story anyway.

President Obama has finally returned from vacation and will be getting updated on all the latest crotch-bomber intel, according to CNN.

Obama will meet with FBI Director Robert Mueller, Attorney General Eric Holder and Secretary of Homeland Security Janet Napolitano Tuesday, an administration official told CNN.

Obama will get an update from Mueller on the FBI’s investigation. Obama will get information from Holder on the prosecution of the suspect in the botched Christmas Day airline bombing. And he will get an update from Napolitano on her review on detection capabilities, the official said.

After the meeting, Obama will make public statements about his findings and an initial series of reforms to improve the country’s ability to thwart future attempts to carry out terrorist attacks, according to the official.

The president met with Deputy National Security Adviser John Brennan for 90 minutes on Monday and is scheduled to meet with him again Tuesday, the official said.

And then I suppose Obama will be headed back to the golf course?

Mickey Kaus wants to know: Wherein lies the greatness of Janet Napolitano?

She gave an awful public performance in the wake of the Flt. 253 terror incident–assuring air travelers that “the system worked” when the one obvious thing was that for whatever reason the system didn’t work, as President Obama acknowledged a few days later. She then seems to have panicked and pressed the “Friends, Save Me” button.

Then he links to a lot of articles by smarmy villagers like David Broder and MoDo defending Napolitano. Will she stay or will she go?

The U.S. embassy in Yeman is open again, according to the LA Times.

U.S. officials said they reopened the embassy today because a Yemeni counterterrorism operation on Monday “addressed a specific area of concern.”

Yemeni officials reportedly killed two and injured two suspected Al Qaeda in the Arabian Peninsula operatives Monday. The Interior Ministry today said it had arrested five other “terror elements” in and around the capital and Hudaydah province.

The ministry said it had beefed up security measures around foreign embassies and residential districts favored by the international community in Sana, according to Yemen’s official Saba news agency. An unnamed official told Saba that security forces had imposed a “cordon” and round-the-clock surveillance around Al Qaeda militants.

Commenter Laurie posted this piece by John Pilger in the New Statesman: Welcome to Orwell’s world Pilger argues that the US is Oceania and I guess Obama is Big Brother. It would be hard to pick an except from this piece–you need to read the whole thing.

Here’s an interesting piece by Professor James Petras on how China and South Korea are beating the pants off U.S. in economic terms while our government focuses on military power and empire building.

The story told by the articles and headlines in a single day’s issue of the Financial Times reflects a deeper reality, one that illustrates the great divide in the world today. The Asian countries, led by China, are reaching world power status on the basis of their massive domestic and foreign investments in manufacturing, transportation, technology and mining and mineral processing. In contrast, the US is a declining world power with a deteriorating society resulting from its military-driven empire building and its financial-speculative centered economy….

[….]

To become a ‘normal state’ we have to start all over: Close all investment banks and military bases abroad and return to America. We have to begin the long march toward rebuilding industry to serve our domestic needs, to living within our own natural environment and forsake empire building in favor of constructing a democratic socialist republic.

When will we pick up the Financial Times or any other daily and read about our own high-speed rail line carrying American passengers from New York to Boston in less than one hour? When will our own factories supply our hardware stores? When will we build wind, solar and ocean-based energy generators? When will we abandon our military bases and let the world’s warlords, drug traffickers and terrorists face the justice of their own people?

What are you reading this morning?

HAVE A TERRIFIC TUESDAY, CONFLUCIANS!!!!!!!

What’s Going On Between Obama and the CIA?

President Obama speaking at CIA Headquarters

A kind of war of leaks appears to be going on between Obama administration and the CIA. I realize that it is nothing new for Presidents of the U.S. to have conflicts with the CIA–Presidents since Truman have struggled to control the intelligence apparatus he set in motion after World War II.

I’m certainly no expert on this kind of thing, and I’m hoping someone like Joseph Cannon will be able to explain it eventually. But for now, I thought I’d just post some of the things I’ve been reading in the hopes that together we can make some sense out of the situation. So here’s the deal.

First we had crotch bomber Umar Farouk Abdul Mutallab, who managed to get through multiple airline security systems and come close to detonating a bomb in his underwear on Delta Flight 253 from Amsterdam to Detroit on Christmas day. For a full examination of what is know about the crotch bombing incident, you can’t beat the two excellent posts that Joseph Cannon has written so far. Scroll down for the earlier post on the many strange questions about case.

President Obama’s first response to the aborted bombing attempt came on December 31. Here is a portion of the statement from the White House web site:

I wanted to speak to the American people again today because some of this preliminary information that has surfaced in the last 24 hours raises some serious concerns. It’s been widely reported that the father of the suspect in the Christmas incident warned U.S. officials in Africa about his son’s extremist views. It now appears that weeks ago this information was passed to a component of our intelligence community, but was not effectively distributed so as to get the suspect’s name on a no-fly list.

There appears [sic] to be other deficiencies as well. Even without this one report there were bits of information available within the intelligence community that could have and should have been pieced together. We’ve achieved much since 9/11 in terms of collecting information that relates to terrorists and potential terrorist attacks. But it’s becoming clear that the system that has been in place for years now is not sufficiently up to date to take full advantage of the information we collect and the knowledge we have.

Had this critical information been shared it could have been compiled with other intelligence and a fuller, clearer picture of the suspect would have emerged. The warning signs would have triggered red flags and the suspect would have never been allowed to board that plane for America.

Obama then went on to praise the intelligence community and to say that he understood that even the best people weren’t infallible. This was apparently interpreted by members of the CIA as an attack by Obama on their competence.

To Paul K with love

So Krugman says:

The magazine cover effect

I’ve long been a believer in the magazine cover indicator: when you see a corporate chieftain on the cover of a glossy magazine, short the stock. Or as I once put it (I’d actually forgotten I’d said that), “Whom the Gods would destroy, they first put on the cover of Business Week.”

. . . . Presumably the same effect applies to, say, economists.

You have been warned.

Could he be talking about this from Tennessee Guerilla Women?

Newsweek Cover: “OBAMA IS WRONG: The Loyal Opposition of Paul Krugman”
Paul Krugman — who as far as I can see is right about everything — is on the cover of the forthcoming Newsweek. The choice of the cover story — Obama’s Nobel Headache — is explained in a letter to readers by Newsweek Editor Jon Meacham.

Joseph Cannon isn’t going to forget. . . . (and neither will I)

Cannon Fodder

This is a very difficult post to write.  I was hoping that the recent incident that resulted in taking Cannonfire off of our blogroll would go undetected.  But some of our readers, including Joseph Cannon himself, have quickly called attention to the deletion so some of us frontpagers feel we owe our readers an explanation.

First of all, I’d just like to say that as difficult as it is to do this, it is even harder to do it without pointing fingers at anyone.  We don’t want to assign blame or point fingers.  We don’t want to make enemies and we certainly do not wish to further alienate some of our friends who are protesting the frontpage by their absence.  The majority of the frontpagers met online and decided that in spite of the hurt feelings on both sides, we would like to forgive and forget and put the whole incident behind us.  The door is always open to all of our colleagues.  We feel like family who just had a bit of a falling out.

Here’s what happened:  A couple of weeks ago, Joseph Cannon posted on the Israel/Palestinian issue.  His position appears to be very favorable to Palestinians to the point of regretting the creation of the state of Israel.  I confess that on occasion, I too wish that God had chosen a different part of the world for his holy land but usually, I’m just joking when I say it.  Nevertheless, it is difficult to talk this way about the issue without being accused of anti-Semitism.  For the record, those of us who met to discuss the issue have decided that for our purposes, the definition of anti-Semitism that makes most sense to The Confluence is the irrational hatred of Jewish people and their culture which may be expressed as discrimination and violent acts.  When discussing the viability of the state of Israel, a person may or may not be expressing an anti-Semitic opinion.  He or she may be making a political comment.  We are aware that there are some groups, even some Christian groups, that would consider such sentiments anti-Semitic.  These groups may hope to squelch conversation on the subject by claiming political opinions to be anti-Semitic in nature in a manner that is reminiscent of the Obots calling us racists last year because we saw through Obama.  It is a very effective way of silencing one’s critics.

We got ensnared in that problem.  Some of the frontpagers of The Confluence have a very broad definition of anti-Semitism and as a result, they felt that the inclusion of Cannonfire on the blogroll marked The Confluence as being sympathethic to snti-Semitic views.  Some other commenters felt that this opinion was unfair and painted us all with a guilt by association to an accusation that was not proven.  Unfortunately, I did not read Joseph Cannon’s post.  Most of the day I am behind a corporate firewall and all most blogs are off limits to me.  I have read Cannon on occasion and found some of his posts to be well reasoned and insightful and some of his posts to be a little tin-foily for my tastes.  But I really don’t have an opinion on his I/P position except to say that anyone who posts on the topic has got to have balls of steel.  Both sides have legitimate points.  Both have behaved badly.  It is an intractable problem and no one is above criticism.  But if criticizing or losing patience with one side or the other makes us anti-Semitic, then I suppose the whole world is anti-Semitic.  I believe LadyBoomerNYC, our voice of Sophia Wisdom, calmed the waters about the whole problem and said politics is one of the reasons why she became a hippy- it’s a lot less stressful.

Well, the long and the short of it is that some of our frontpagers wanted Cannonfire off of the blogroll.  Normally, I would tell them to take a hike and stop bullying the rest of us.  But seeing as Joseph has asked that other blogs not link to him in the first place, it gave us a cowardly way to put the issue to rest.  Or so we thought.  Unfortunately, that action wasn’t sufficient for some of our frontpagers.  In not so subtle ways, they asked us to denounce Cannon and agree that his posts were anti-Semitic.  This was too much for many of us because it implied that if we like Cannon for other reasons we must be guilty.  Many of us were hurt on both sides and tears were shed by those who were accused.  I don’t think I can adequately express the pain.  It feels like betrayal by people you most cared about and who you would never dream of hurting.  Nevertheless, it is what it is and some of our frontpagers have left for greener pastures.  We wish them well and hope that someday we can get back togehter.  But in the meantime, we just need to let the dust settle and tempers cool.

As to Joseph Cannon, he is free to write what he wants.  I think I speak for everyone who writes for The Confluence that we do not approve of anti-Semitism.  We support the state of Israel but we do hold both sides responsible for the turmoil and unrest in the Levant.  The end doesn’t justify the means for either party.  We would not go so far as to say that we wish the state of Israel did not exist because we believe that the state has done much good that outweighs whatever bad it has done.  But it is time to get its house in order and it is time for the Palestinians to disavow terrorism.  People who have stronger opinions have the obligation to back them up with solutions that will defuse the inevitable conflict that results from implementation.

So, that’s the whole sordid story.  I’d like to thank everyone who has written for The Confluence in the past year.  I have enjoyed all of the posts from each one of those truly talented individuals.  We have removed Cannonfire but may occasionally link to him as the occasion arises.  The persons offended by having him in the blogroll in the first place, however, should not expect an apology.  At this point, the damage is too extensive on both sides of the divide.  We either learn to tolerate each other, respecting our differences in opinion and write together or we go our separate ways.