"In a time of universal deceit telling the truth is a revolutionary act." -George Orwell

Posts Tagged ‘Derregulation’

Under Industry Pressure USDA Works To Speed Approval Of Monsanto’s Genetically Engineered Crops & Allow “Self-Regulation”

In Uncategorized on December 21, 2011 at 5:23 pm

Oldspeak:” ‘Under a new two-year pilot program at the USDA, regulators are training the world’s biggest biotech firms, including Monsanto, BASF and Syngenta, to conduct environmental reviews of their own transgenic seed products as part of the government’s deregulation process.’ –Mike Ludwig. It’s the equivalent of letting BP do their own Environmental Assessment of a new rig’ –Bill Freese, Center for Food Safety I don’t know what part of demostratably dangerous effects on humans, animals and the environment these people don’t understand. In one of the Bastions of GMO, Brazil a 2 headed baby was just born. I guess when this starts happening more regularly, people will start paying attention to the poison in their food, that has been shown to cause among many things birth defects. o_O “Ignorance Is Strength”

By Mike Ludwig @ Truthout

For years, biotech agriculture opponents have accused regulators of working too closely with big biotech firms when deregulating genetically engineered (GE) crops. Now, their worst fears could be coming true: under a new two-year pilot program at the USDA, regulators are training the world’s biggest biotech firms, including Monsanto, BASF and Syngenta, to conduct environmental reviews of their own transgenic seed products as part of the government’s deregulation process.

This would eliminate a critical level of oversight for the production of GE crops. Regulators are also testing new cost-sharing agreements that allow biotech firms to help pay private contractors to prepare mandatory environmental statements on GE plants the United States Department of Agriculture (USDA) is considering deregulating.

The USDA launched the pilot project in April and, in November, the USDA announced vague plans to “streamline” the deregulation petition process for GE organisms. A USDA spokesperson said the streamlining effort is not part of the pilot project, but both efforts appear to address a backlog of pending GE crop deregulation petitions that has angered big biotech firms seeking to rollout new products.

Documents obtained by Truthout under a Freedom Of Information Act (FOIA) request reveal that biotech companies, lawmakers and industry groups have put mounting pressure on the USDA in recent years to speed up the petition process, limit environmental impact assessments and approve more GE crops. One group went as far as sending USDA Secretary Tom Vilsack a timeline of GE soybean development that reads like a deregulation wish list. [Clickhere and here to download and read some of the documents released to Truthout.]

The pilot program is named the NEPA Pilot Project, after the National Environmental Policy Act (NEPA), which mandates that agencies prepare statements on the potential environmental impacts of proposed actions by the federal government, such as deregulating transgenic plants. On July 14, USDA officials held a training workshop to help representatives from biotech firms (see a full list here) to understand the NEPA process and prepare Environmental Reports on biotech products they have petitioned the USDA to deregulate.

Regulators can now independently review the Environmental Reports and can use them to prepare their own legally mandated reviews, instead of simply reviewing the company’s petitions for deregulation. The pilot project aims to speed up the deregulation process by allowing petitioning companies to do some of the legwork and help pay contractors to prepare regulatory documents and, for its part, the USDA has kept the pilot fairly transparent. Alist of 22 biotech seeds that could be reviewed under the pilot program includes Monsanto drought-tolerant corn, a “non-browning” apple, freeze tolerant eucalyptus trees and several crops engineered to tolerate the controversial herbicides glyphosate and 2,4 D.

Activists say biotech firms like Monsanto are concerned only with profit and routinely supply regulators with one-sided information on the risks their GE seeds – and the pesticides sprayed on and produced by them – pose to consumers, animals and the agricultural environment. (The Natural Society recently declared Monsanto the worst company of 2011.) Bill Freese, a policy expert with the Center for Food Safety (CFS), told Truthout that the NEPA pilot gives already powerful biotech companies too much influence over the review process.

“It’s the equivalent of letting BP do their own Environmental Assessment of a new rig,” Freese said.

Monsanto Goes to Court

Freese and the Center for Food Safety have been on the frontlines of the battle to reform the USDA’s regulatory approval process for GE crops. The group was a plaintiff in recent lawsuits challenging the deregulation – which basically means approval for planting without oversight – of Monsanto’s patented alfalfa and sugar beets that are genetically engineered to tolerate glyphosate-based Roundup herbicide. Farmers can spray entire fields of Monsanto’s “Roundup Ready” crops with Roundup to kill unwanted weeds while sparing the GE crops, but in recent years, some weeds have developed a tolerance to glyphosate, Roundup’s active ingredient. The cases kept the crops out of America’s fields for years and prompted biotech companies to put heavy pressure on top USDA officials to streamline and speed up the deregulation process, practically setting the stage for the NEPA pilot underway today.

Under NEPA, agencies like the USDA must prepare an Environmental Assessment (EA) to determine if the proposed action, such as deregulating a transgenic organism, would have an impact on the environment. If some type of significant impact is likely, the agency must then prepare a more in-depth Environmental Impact Statement (EIS) to explore potential impacts and alternative actions. NEPA requires an EIS for actions “significantly affecting the quality of the human environment.” Preparing a full impact statement for a biotech plant implies the government does not think GE crops are safe and the biotech industry has routinely butted heads with environmentalists while attempting to convince regulators and consumers otherwise. In the Monsanto beets and alfalfa cases, the CFS and other plaintiffs argued that the USDA should have prepared an EIS, not just a simple EA, before deregulating both Monsanto crops.

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In the alfalfa case, the CFS and its co-plaintiffs claimed the crop could have significant impacts by crossbreeding and contaminating conventional and organic alfalfa with transgenes. They also argued the crop would increase the use of herbicides and promote the spread of herbicide-tolerant weeds known as “super weeds.” A federal district court agreed and vacated the USDA’s original approval, halting plantings across the country. Monsanto challenged the decision and the alfalfa case landed in the Supreme Court in 2010.  The high court overturned an injunction preventing farmers from planting the alfalfa, but also ordered the USDA to prepare an EIS and issue another deregulation decision. The sugar beet case ended in similar fashion and the USDA recently released a draft EIS on the crop, which is expected to be deregulated in early 2012.

Monsanto won the right to sell its GE alfalfa seed in February 2011, but the lengthy and expensive legal battle captured the attention of food lovers and agriculturalists across the country. Americans debated the potential dangers of GE crops and the merits of the regulatory system that is supposed to protect farmers and consumers. As documents unearthed by a Truthout FOIA request reveal, the biotech industry did not sit idly by as activists challenged the regulatory status quo.

Mounting Pressure

The Biotechnology Industry Organization (BIO) is a powerful group that represents dozens of biotech companies such as Monsanto, BASF and Bayer, and has spent more than $67 million lobbying Congress since 2000. In April 2010, BIO sent a letter to USDA Secretary Tom Vilsack as the Monsanto alfalfa case made its way through the courts. BIO warned Vilsack that the American biotech agriculture industry could be crippled if the legal precedents required the USDA to prepare an EIS for every GE crop up for deregulation:

With 19 deregulation petitions pending with more on the way, requiring an EIS for each product would amount to a de facto moratorium on commercialization and would send an unprecedented message that USDA believes that these products do have an environmental impact, when in fact most do not. Any suggestion by USDA that biotechnology plants as a category are likely to cause significant adverse effects on the quality of the human environment (i.e., require an EIS) would make approvals by other trading partners virtually impossible …

BIO claimed that such a policy would be an “over-reaction to the current judicial decisions” and would threaten America’s economic dominance in the agricultural biotechnology market. Such a policy, BIO representatives stated, would send a message to European countries that American regulators believe GE crops impact the environment, making approvals of GE crops by the European Union “virtually impossible” and allowing “Brazil and China to surpass the United States as world leaders in biotechnology.” BIO also claimed that more rigorous assessments would “undercut” positions consistently take by the Obama and Bush administrations on the safety of biotech agriculture.

Vilsack received similar letters requesting the USDA continue relying on EAs instead of EISs to deregulate GE crops from the Americas Soybean Association and the American Seed Trade Association. Both groups worried that an increase in oversight – precipitated by the more in-depth impact evaluation – could back up approvals for years. The soybean association included in its letter a pipeline chart of 25 GE soybean varieties it “expected” to be approved for commercialization within a decade.

A policy requiring an EIS for every GE seed is exactly what critics of Monsanto and the rest of the industry have spent years fighting for. Unlike the industry, they believe the herbicides that blanket GE crops and the potential for transgenic contamination are potential threats to the agricultural environment and human health.

Vilsack wrote a steady-handed reply to each trade group, reassuring them that the NEPA policy would not change and the USDA would continue preparing an EA for new GE seeds and an EIS only when necessary. Vilsack also wrote that he was “pleased” to recently meet with biotech industry representatives and “discuss improving the efficiency of the biotechnology regulatory process.” Such improvements, he wrote, are “directly related” to the USDA’s “objective of ensuring the United State leads the world in sustainable crop production and biotech crop exports.” He took the opportunity to announce that the USDA would reorganize the Biotechnology Regulatory Services agency and create a new NEPA team “dedicated to creating high quality and defensible documents to better inform our regulatory decisions.” This new NEPA team would go on to develop the NEPA Pilot Project and begin streamlining the approval process.

To Freese, it appears that Vilsack used to the word “defensible” in reference to legal challenges like the ones his group made to Monsanto alfalfa and sugar beets. “Their whole focus is on ‘defensible’ Environmental Assessments,” Freese said after reading the letters. “From our perspective, that’s the wrong goal … it presumes the crop is going to be approved.”

Freese said the correspondence between Vilsack and the industry groups highlights the need for a culture change at the USDA. Regulators should be concerned about the safety of new GE products, not ensuring American exports compete with Brazil and China.

“It should be all about doing good assessments and making sure the crops that are approved are safe,” Freese said.

A USDA spokesperson declined to comment when asked if the agency would like to respond to criticisms of the NEPA Pilot Project and said updates on the project will be made available online.

Watchdogs like Freese know that regulators already work closely with the industry and the NEPA Pilot Project could simply make their work more efficient. Regulators already rely heavily on data provided by private contractors and by biotech companies to prepare EAs. During the Monsanto alfalfa case, internal emails between regulators and Monsanto officials surfaced and revealed the company worked closely with regulators to edit its original petition to deregulate the alfalfa. One regulator even accepted Monsanto’s help in conducting the USDA’s original EA of the GE alfalfa before it was initially approved in 2005.

Genetically engineered and modified crops continue to cause controversy across the globe, but in America they are a fact of life. The Obama and Bush administrations have actively promoted biotech agriculture both at home and abroad. Countries like China, Argentina and Brazil have also embraced biotech agriculture. Regulators in European countries – including crucial trade partners like France and Spain – have been much more cautious and, in some cases, even hostile toward the industry. GE crops are banned in Hungary and Peru, and earlier this year officials in Hungary destroyed 1,000 acres of corn containing Monsanto transgenes. The US, however, continues to allow big biotech companies to cultivate considerable power and influence and, as the letters uncovered by FOIA reveal, top regulators are ready to meet their demands.

“The USDA regards its own regulatory system as a rubber stamp,” Freese said after reading the letters. “At least at the upper levels, there’s always been this presumption that [GE crops] must be approved.”

Obama White House Has Weakened More Lobbyist-Opposed Health, Public Safety Regulations Than Bush Administration

In Uncategorized on December 2, 2011 at 5:22 pm

Oldspeak:”A new report shows that despite a campaign pledge to get lobbyists out of Washington, the Obama White House has weakened regulation in favor of corporate interests more than the Bush administration. The report deals with issues that are of concern to every American; smog in our cities, collapsing mine shafts that kill workers in West Virginia, the Deepwater Horizon spill in the Gulf of Mexico, salmonella in peanut paste, a whole variety of public health threats that agencies of the government were set up to avoid. Unfortunately, although we expected a bright new future with President Obama, he has disappointed us in this area to a large extent, inserting politics and pandering to special interests rather than letting science and technology reign.”-RENA STEINZOR. Yet another campaign promise gone unfulfilled. Sadly, due to the frightfully inept and unelectable presidential alternatives offered by Republicans, it’s not likely Obama will be held accountable to the long list of changes for the worse he’s presided over. Moral of the story? The Corporatocracy rules, no matter who you ‘vote’ for. More change I can’t believe in.

Related Story:

“Behind Closed Doors at the White House: How Politics Trumps Protection of Public Health, Worker Safety and the Environment”

By Amy Goodman @ Democracy Now:

A new report shows that despite a campaign pledge to get lobbyists out of Washington, the Obama White House has weakened regulation in favor of corporate interests more than the Bush administration. The study, “Behind Closed Doors at the White House: How Politics Trumps Protection of Public Health, Worker Safety, and the Environment,” examines more than a thousand meetings that took place over a decade between lobbyists and a little known regulatory office, then checks to see how proposed rules were weakened to accommodate industry requests. It found the Obama White House changed rules 76 percent of the time, while Bush changed them just 64 percent of the time. EPArules were changed at a significantly higher rate — 84 percent. We speak to the report’s lead author, Rena Steinzor, professor at the University of Maryland Carey School of Law and President of the Center for Progressive Reform.

AMY GOODMAN: As we end on a new report that shows despite President Obama’s campaign pledge to get lobbyists out of Washington, the White House has weakened regulation in favor of corporate interests even more than the Bush administration. The study examines more that 1,000 meetings that took place over a decade between lobbyists and a little known regulatory office, then checks to see how proposed rules were weakened to accommodate industry requests. It found the Obama White House changed rules 76% of the time while the Bush administration changed them just 64% of the time. EPA rules were changed a significantly higher rate, 84%.

NERMEEN SHAIKH: Much of this is due to the man Obama appointed to the head of House of Information and Regulatory Affairs, through which all proposed regulation must pass. Cass Sunstein is know for his academic work on the risks of overregulation. Well, for more we’re joined from Washington, D.C. by Rena Steinzor, Professor at the University of Maryland Carey School of Law and President of the Center for Progressive Reform. She’s the lead author of this exhaustive report, “Behind Closed Doors at the White House: How Politics Trumps Protection of Public Health, Worker Safety, and the Environment.” Rena, welcome to Democracy Now!. Can you talk about this report?

RENA STEINZOR: The report deals with issues that are familiar and of concern to every American; smog in our cities, collapsing mine shafts that kill workers in West Virginia, the Deepwater Horizon spill in the Gulf of Mexico, salmonella in peanut paste, a whole variety of public health threats that agencies of the government were set up to avoid. Unfortunately, although we expected a bright new future with President Obama, he has disappointed us in this area to a large extent, inserting politics and pandering to special interests rather than letting science and technology reign.

AMY GOODMAN: Rena Steinzor, the issue of the smog regulations that so blindsided the Administrator of the EPA, Lisa Jackson.

RENA STEINZOR: Yes, Lisa Jackson, was—-when she was appointed there was tremendous relief and joy in the community of public health experts and environmentalists who watch EPA. And she immediately stepped in to try and get a lot of these rules, which were mandated by Congress, back on track and promised to repair the damage that was left by George W. Bush. But, this small office in the White House, which panders to special interests, stepped in and was the president’s point person, point agency to destroy her efforts to strengthen these protections. And anyone who lives in a major American city knows Code Red days when children are not allowed to play outside because the air pollution is so bad.

AMY GOODMAN: We have 15 seconds, if you can summarize what happened.

RENA STEINZOR: Really, it is remarkable that an effort to clean up smog in American cities should be killed by an office at the White House that caters to special interests.

AMY GOODMAN: Rena Steinzor, we will link to your report, Professor at the University of Maryland Carey School of Law, President of The Center for Progressive Reform, lead author in this report, “Behind Closed Doors at the White House: How Politics Trumps Protection of Public Health, Worker Safety, and the Environment.”

 

For Sale: The Desperate States Of America

In Uncategorized on June 3, 2011 at 11:35 am

Oldspeak:” The U.S. economy is being restructured in a way that will largely benefit wealthy elites and be detrimental to the rest. Everything public: Government, Schools, Prisons, Energy, Services, Parks, Lands, Housing Health Care, etc. if the free-market ideologues in government have their way, is to be privatized. The usual result of  privatization: significant increases in costs to customers; reduction in quality of and access to service. When dealing with organizations whose prime directives are to Internalize and maximize ever-increasing profit while externalizing and minimizing as much cost as possible this is the only logical outcome. We’ve seen it played out time and time again in the gutting of America. “The core tenets of free market fundamentalism —  privatization, deregulation, and cuts to government services — has laid the foundation for the economic breakdown we are witnessing today.  And this recession-induced breakdown is being used by professional disaster capitalists to warrant more privatization, deregulation, and cuts to government services until there is nothing left.  It is clear that the continued auctioning off of pieces of the state to large corporations will result in a total loss of democratic control to the disaster capitalists who are profiting immensely from their orchestrated crisis.” –Rania Khalek.  Meanwhile, the “Defense” budget continues to grow. Why is our “civilization” predicated on “owning” everything, hoarding “wealth” and “power”? Why are a few deranged people, Bohemian Grove Members willing to sacrifice our entire planet for their own personal gain?

By Rania Khalek @ Common Dreams

While we have been frantically playing defense against relentless assaults on multiple fronts, from anti-union legislation to draconian anti-choice laws to the attempted privatization of Medicare, the selling off of public assets to the private sector has received little attention.

As states face a budget shortfall of $125 billion dollars for fiscal year 2012, leaders are searching for creative ways to fill budget gaps, while refusing to consider the one legitimate solution: forcing tax-dodging corporations and the rich to pay their fair share in taxes.  Rather than upset the moneyed interests who bought their seats in office, politicians of all stripes prefer to cut pensions, close schools, slash child nutrition programs, and most importantly privatize, privatize, privatize!

In 2008, Chicago Mayor Richard Daley auctioned off the city’s 36,000 parking meters to a Morgan-Stanley lead partnership, for a lump sum of $1.15 billion.  According to Bloomberg, Chicago drivers will pay Morgan Stanley at least $11.6 billion to park at city meters over the next 75 years, 10 times what the system was sold for.  The Mayor used millions from the deal to help balance the budget, but since then, Morgan Stanley has raised parking fees 42%.  It now plans on stuffing more cars into fewer metered spaces by getting rid of marking lines, raising the number of metered slots and expanding the hours that require fees.  Chicago gave up billions of dollars in revenue for a short-term fix and now, if the city faces another fiscal crisis, it will be left with an asset that generates revenue for Morgan Stanley.  Despite the controversy in Chicago, the Associated Press reports that New York is exploring private options for its parking spaces as well.

Meanwhile, Rep. Dennis Ross (R-FL), a member of the Tea Party Caucus, has suggested that one way to help close the nation’s budget deficit is to “start liquidating” public lands in Utah by privatizing large parts of the state, 70 percent of which is owned by the federal government.  Soon after, Utah Governor Gary Herbert hopped on board, agreeing that Ross’s idea was “worth exploring.”  He even went so far as to claim that the land would be better in private hands because private owners maintained Indian artifacts and burial grounds better.  Apparently his position is quite popular, since it has been embraced by Senators Mike Lee (R-UT) and John McCain (R-AZ), who proposed a bill which would sell off land in Utah and other western states.

The most insidious privatization scheme so far this year was in Wisconsin, the center of the state budget battles.  A provision in Republican Governor Scott Walker’s budget repair bill would have empowered politicians to sell any state-owned heating, cooling, or power plant, including those located in prisons and the University of Wisconsin campuses, to anyone for any price at any time, without public approval or a call for bids.  Although the provision was ultimately removed from the budget bill just before it passed, it is expected to be taken up again later this year.

In an effort to offset an $8 billion budget deficit, Ohio Republican Governor John Kasich has proposed privatizing five prisons, a sale expected to bring in an estimated $200 million.  Florida’s GOP-controlled Legislature is set to require the state to privatize prisons in South Florida, home to one-fifth of the statewide inmate population of 101,000.  Louisiana Republican Governor Bobby Jindal plans to sell three state prisons to private operators.  Similar bills have sprung up in other states, nevermind that evidence showing that private prisons actually save any money is seriously lacking.

In more desperate and bizarre attempts to fill in budget gaps the City Council in Naperville, IL is considering giving corporations exclusive rights to plaster their logos on city property.  One proposed municipal sponsorship deal would allow Kentucky Fried Chicken to repair potholes in exchange for stamping the fresh asphalt with the chicken chain’s logo.

It would be foolish to assume that the push for privatization is isolated to the GOP or the states.  The “liberal” Obama administration has proposed legislation that would establish a presidentially appointed, seven-member Civilian Property Realignment Board, tasked with evaluating excess federal properties.  The surplus includes 12,000 buildings, pieces of land and other property nationwide that the federal government wants to get rid of.

According to McClatchy, the White House claims it would see savings of as much as $15 billion by no longer having to maintain or pay for utilities at some of the underused or unused facilities.  The government in 2009 reported spending $134 million to maintain buildings that have been declared excess.  It costs an estimated $1.3 billion a year to maintain federal buildings that aren’t yet declared surplus but that go underused.  However, it remains unclear if and how this strategy would result in a significant enough amount of savings to make a dent in a trillion dollar deficit.

Ironically, the list includes land where the dorms in Daniel Boone National Forest are located, which once served as a camp for workers from the Civilian Conservation Corps, a Great Depression work program.  Rather than invest in jobs programs to put the unemployed back to work like FDR did during the Great Depression — an idea that the Obama administration has all but abandoned — the President has instead chosen the path of austerity and privatization, tactics that have historically been detrimental to society.

It’s no secret that corporate behemoths, backed by their free-market think tanks and foundations have long dreamed of privatizing everything public.  Thus far, they have been largely successful in hollowing out the defense department by outsourcing computer, intelligence, and even combat operations to for-profit companies like Lockheed Martin, Halliburton, and Blackwater, to name a few.  We now know that this was done intentionally, strategically planned by the likes of Donald Rumsfeld and Dick Cheney, who profited magnificently as a result.  The terrorist attacks on 9-11 presented the Bush administration with the opportunity to accelerate the outsourcing of war.

In the Shock Doctrine, Naomi Klein thoroughly documents how wealthy elites often use times of crisis and chaos to impose unpopular policies that restructure economies and political systems to further advance their interests.  She calls these orchestrated raids on the public sphere in the wake of catastrophic events, combined with the treatment of disasters as exciting market opportunities, “disaster capitalism.”

While catastrophic events, such as natural disasters or terrorist attacks, are difficult to predict, economic disasters are not.  With this in mind, it’s difficult to deny that the economic crisis has been somewhat manufactured to serve as a pretext for draconian cuts into social programs that the corporate state has long been eyeing.  On it’s face, this theory seems conspiratorial, however a brief review of recent history demonstrates a trend of intentional crisis generation.

Paul Krugman understood this concept in 2003, during the implementation of the Bush era tax cuts for the wealthy, when he wrote the following:

“the gimmicks used to make an $800-billion-plus tax cut carry an official price tag of only $320 billion are a joke, yet the cost without the gimmicks is so large that the nation can’t possibly afford it while keeping its other promises.

But then maybe that’s the point. The Financial Times suggests that ”more extreme Republicans” actually want a fiscal train wreck: ”Proposing to slash federal spending, particularly on social programs, is a tricky electoral proposition, but a fiscal crisis offers the tantalizing prospect of forcing such cuts through the back door.”

It’s no secret that right-wing ideologues want to abolish programs Americans take for granted. But not long ago, to suggest that the Bush administration’s policies might actually be driven by those ideologues — that the administration was deliberately setting the country up for a fiscal crisis in which popular social programs could be sharply cut — was to be accused of spouting conspiracy theories.”

As the free-market ideologues in government continue to neglect America’s aging infrastructure while making deep cuts into education funding and borrowing upwards of a trillion dollars for two failed wars, they reaffirm the perception that the government is inefficient and incapable of providing what they believe private enterprise can do better.

The fact of the matter is that those now shrieking about big government debts and deficits have spent the last decade maximizing government spending with unaffordable wars, financial deregulation, and tax cuts for the wealthy, which they knew would cost trillions of dollars.  Today, the consequences of their actions, which they were warned about, are the ploy these very same people are using to justifythe accelerated demise of welfare programs, and the incremental destruction of the meager social safety net that guarantees Americans won’t starve in their old age.

The core tenets of free market fundamentalism —  privatization, deregulation, and cuts to government services — has laid the foundation for the economic breakdown we are witnessing today.  And this recession-induced breakdown is being used by professional disaster capitalists to warrant more privatization, deregulation, and cuts to government services until there is nothing left.  It is clear that the continued auctioning off of pieces of the state to large corporations will result in a total loss of democratic control to the disaster capitalists who are profiting immensely from their orchestrated crisis.

Rania Khalek is a young, progressive activist with a passionate dedication to social justice. Check out her blog Missing Pieces or follow her on twitter @Rania_ak. You can contact her at raniakhalek@gmail.com.


How To Make $4 Trillion Vanish In A Flash: Why Another Financial Crash Is Certain

In Uncategorized on February 12, 2011 at 4:23 pm

Oldspeak: “ President Barack Obama understands the basic problem, but he also knows that he won’t be reelected without Wall Street’s help.  That’s why he promised to further reduce “burdensome” regulations in the Wall Street Journal just two weeks ago. His op-ed was intended to preempt the release of the Financial Crisis Inquiry Commission’s (FCIC) report, which was expected to make recommendations for strengthening existing regulations. Obama torpedoed that effort by coming down on the side of big finance. Now, it’s only a matter of time before another crash.” -Mike Whitney

From Mike Whitney @ Counter Punch:

Readers, while this seems all very prescient, it is still limited. Actually the carry trade originating in Japan ended in July 2007, ergo ipso facto presto, the wind disappeared from the carry trade speculation ponzi game. The Japanese carry trade was essentially privatized fiat “money” more or less leveraged from the savings of Japanese citizens unless you factor the infintesimal reserve requirements for the issuance of those digital entries which were run through the numerous UK associated pirate banking coves and archepelagos. Capeiche, Y’all? That retraction of the Japanese carry trade was precipitated by China acting to change that dynamic with their substantial foreign exchange reserves. It started using the Yen as one of its foreign reserve currencies, which drove the value of the Yen upward, suddenly strong not “weak”. The lack of regulation of banking and speculation on a global basis becomes the key problem. The French banking implosion may have been the first large meltdown. To paraphrase George Soros, I believe, when the tide goes out you can suddenly see who have lost their bathing suits. The US Federal Reserve imitation of the carry trade, wrapped in the econo gibberish of “quantitative easing” is effectively a rebooting of the Japanese carry trade. Same BS, different source. The QE nonsense will implode in an equal or greater implosion without a doubt. Understand also that harboring this hyperinflationary “money” within the shadow banking dys-system, is what is now fueling commodities speculation, and so the fictions continue to reinflate the global Ponzi. Tadit Anderson

On August 9, 2007, an incident took place at a bank in France that touched-off a financial crisis that that would eventually wipe out more than $30 trillion in capital and thrust the world into the deepest slump since the Great Depression. The event was recounted in a speech by Pimco’s managing director Paul McCulley, at the 19th Annual Hyman Minsky Conference on the State of the U.S. and World Economies. Here’s an excerpt from McCulley’s speech:

“If you have to pick a day for the Minsky Moment, it was August 9. And, actually, it didn’t happen here in the United States. It happened in France, when Paribas Bank (BNP) said that it could not value the toxic mortgage assets in three of its off-balance sheet vehicles, and that, therefore, the liability holders, who thought they could get out at any time, were frozen. I remember the day like my son’s birthday. And that happens every year. Because the unraveling started on that day. In fact, it was later that month that I actually coined the term “Shadow Banking System” at the Fed’s annual symposium in Jackson Hole.

“It was only my second year there. And I was in awe, and mainly listened for most of the three days. At the end….I stood up and (paraphrasing) said, ‘What’s going on is really simple. We’re having a run on the Shadow Banking System and the only question is how intensely it will self-feed as its assets and liabilities are put back onto the balance sheet of the conventional banking system.’”

BNP had been involved in credit intermediation, that is, it was exchanging bonds made up of mortgage-backed securities (MBS) for short-term loans in the repo market. It all sounds very complex, but it’s no different than what banks do when they take deposits from customers and then invest the money in long-term assets. (aka–“maturity transformation”) The only difference here was that these activities were not regulated, so no government agency was involved in determining the quality of the loans or making sure that the various financial institutions were sufficiently capitalized to cover potential losses. This lack of regulation turned out to have dire consequences for the global economy.

It took nearly a year from the time that subprime mortgages began to default en masse, until the secondary market (where these “toxic” bonds were traded) went into a nosedive. The problem was simple: No one knew whether the underlying mortgages were any good or not, so it became impossible to price the assets (MBS). This created, what Yale Professor Gary Gorton calls, the e coli problem. In other words, if even a small amount of meat is contaminated, millions of pounds of hamburger has to be recalled. That same rule applies to mortgage-backed securities. No one knew which MBS contained the bad loans, so the entire market froze and trillions of dollars in collateral began to fall in value.

Subprime was the spark that lit the fuse, but subprime wasn’t big enough to bring down the whole financial system. That would take bigger ructions in the shadow banking system. Here’s an excerpt from an article by Nomi Prins which explains how much money was involved:

“Between 2002 and early 2008, roughly $1.4 trillion worth of sub-prime loans were originated by now-fallen lenders like New Century Financial. If such loans were our only problem, the theoretical solution would have involved the government subsidizing these mortgages for the maximum cost of $1.4 trillion. However, according to Thomson Reuters, nearly $14 trillion worth of complex-securitized products were created, predominantly on top of them, precisely because leveraged funds abetted every step of their production and dispersion. Thus, at the height of federal payouts in July 2009, the government had put up $17.5 trillion to support Wall Street’s pyramid Ponzi system, not $1.4 trillion.” (“Shadow Banking”, Nomi Prins, The American Prospect)

Shadow banking emerged so that large cash-heavy financial institutions would have a place to park their money short-term and get the best possible return. For example, let’s say Intel is sitting on $25 billion in cash. It can deposit the money with a financial intermediary, such as Morgan Stanley, in exchange for collateral (aka MBS or ABS), and earn a decent return on its money. But if a problem arises and the quality of the collateral is called into question, then the banks (Morgan Stanley, in this case) are forced to take bigger and bigger haircuts which can send the system into a nosedive. That’s what happened in the summer of 2007. Investors discovered that many of the subprimes were based on fraud, so billions of dollars were quickly withdrawn from money markets and commercial paper, and the Fed had to step in to keep the system from collapsing.

Regulations are put in place to see that the system runs smoothly and to protect the public from fraud. But banking without rules is more profitable, so industry leaders and lobbyists have tried to block the efforts at reform. And, they have largely succeeded. Dodd-Frank – the financial reform act — is riddled with loopholes and doesn’t really resolve the central issues of loan quality, additional capital, or risk retention. Banks are still free to issue bogus mortgages to unemployed applicants with bad credit, just as they were before the meltdown. And, they can still produce securitized debt instruments without retaining even a meager 5 per cent of the loan’s value. (This issue is still being contested) Also, government agencies cannot force financial institutions to increase their capital even though a slight downturn in the market could wipe them out and cause severe damage to the rest of the system. Wall Street has prevailed on all counts and now the window for re-regulating the system has passed.

President Barack Obama understands the basic problem, but he also knows that he won’t be reelected without Wall Street’s help. That’s why he promised to further reduce “burdensome” regulations in the Wall Street Journal just two weeks ago. His op-ed was intended to preempt the release of the Financial Crisis Inquiry Commission’s (FCIC) report, which was expected to make recommendations for strengthening existing regulations. Obama torpedoed that effort by coming down on the side of big finance. Now, it’s only a matter of time before another crash.

Here’s an excerpt from a special report on shadow banking by the Federal Reserve Bank of New York:

“At the eve of the financial crisis, the volume of credit intermediated by the shadow banking system was close to $20 trillion, or nearly twice as large as the volume of credit intermediated by the traditional banking system at roughly $11 trillion. Today, the comparable figures are $16 and $13 trillion, respectively…..The weak-link nature of wholesale funding providers is not surprising when little capital is held against their asset portfolios and investors have zero tolerance for credit losses.” (“Shadow Banking”, Federal Reserve Bank of New York Staff Report)

So, between $4 to $7 trillion vanished in a flash after Lehman Brothers blew up. How many millions of jobs were lost because of inadequate regulation? How much was trimmed from output, productivity, and GDP? How many people are on now food stamps or living in homeless shelters or struggling through foreclosure because unregulated financial institutions were allowed to carry out credit intermediation without government supervision or oversight?

Ironically, the New York Fed doesn’t even try to deny the source of the problem; deregulation. Here’s what they say in the report: “Regulatory arbitrage was the root motivation for many shadow banks to exist.”

What does that mean? It means that Wall Street knows that it’s easier to make money by eliminating the rules….the very rules that protect the public from the predation of avaricious speculators.

The only way to fix the system is to regulate all financial institutions that act like banks. No exceptions.

http://www.counterpunch.org/whitney02082011.html

Mike Whitney lives in Washington state. He can be reached at fergiewhitney@msn.com