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Banks Are Asking Ratings Agencies for AAA Ratings on Junk Bonds Again |
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Wednesday, 17 September 2014 13:03 |
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O'Brien writes: "As far as financial crisis villains go, the credit rating agencies never get enough, well, credit. But now they're reminding us that even-or especially-nincompoops can blow up the global economy when you play them off against each other with the promise of a quick buck."
(photo: Thinkstock/iStockphoto)

ALSO SEE: Virginia Sues 13 Banks for $1.15 Billion, Alleging Fraud Over Retirement Investments
Banks Are Asking Ratings Agencies for AAA Ratings on Junk Bonds Again
By Matt O'Brien, The Washington Post
17 September 14
s far as financial crisis villains go, the credit rating agencies never get enough, well, credit. But now they're reminding us that even—or especially—nincompoops can blow up the global economy when you play them off against each other with the promise of a quick buck.
The history of the crash goes something like this. Lenders made (or misled people into) mortgages that couldn't be paid back. Then, with the magic of math, banks claimed that bundles of these crappy loans were actually as good as gold—or Treasury bonds—since, the story went, they wouldn't all go bad at once. That was enough for the credit rating agencies to put their top-rated, AAA stamp of approval on this financial alchemy. Which was enough for investors to gobble up all this toxic waste. Subprime bonds, after all, paid better than Treasuries, but were supposed to be just as safe.
They weren't. That's because mortgage defaults weren't uncorrelated; they were contagious. So there wasn't any safety in numbers when it came to these dodgy loans. That was bad news for the investors who had bought this junk. And for the banks that hadn't been able to sell all this junk, while leveraging themselves to the hilt. That started a run on the banks that turned into a run on every asset in the world, as fire sales made everything but government-guaranteed debt look worthless.
It wasn't bad news, though, for the credit rating agencies. They made their money rating bonds, and only rating bonds. If it turned out their ratings were garbage, and contributed to a once-in-three-generations crisis—well, oops. But thanks for all the fees! It was one part incompetence, and another part incentives. See, there's a not-entirely-unfair caricature of the credit rating agencies as the dregs of the financial world. They are, in large part, the people who couldn't get jobs on Wall Street, and they can be a bit too credulous of the people who did. (Especially when they want to go there one day).
But as dim as the credit rating agencies might be, they aren't so dim that they can't perceive their own self-interest. And that's getting paid to rate bonds. Here's why that's a problem. There are three major credit rating agencies, but Wall Street only needs one of them to rate a bond. So a bank can ask all of them what rating they would give a bond, and then go with the one that rates it highest. This "ratings shopping," of course, gives credit rating agencies good reason—i.e., their bottom lines—to give banks the ratings they want. There's no point being Cassandra if it drives you out of business.
Dodd-Frank didn't fix this, and now it's coming back. Tracy Alloway of the Financial Times reports that banks are once again asking around to get AAA ratings on dubious bonds. One way to tell is that Fitch has only "been hired for four of the 29 subprime auto ABS deals this year, after telling issuers that the vast majority of bonds did not deserve AAA ratings." Now, the good news is that the subprime auto loan market isn't nearly as big, or systemically important, as the subprime mortgage market was before the crash. But the bad news is that we haven't gotten rid of the credit rating agencies' perverse incentives to rate bonds better than they deserve just to drum up business.
It was dumb enough to create a system that encourages the credit rating agencies to take a Panglossian view of the bonds they're supposedly rating. It'd be even dumber to leave it in place after we've seen what a disaster it is.

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The Billionaire, the NSA and the No-Fly List: America's 'State Secret' Obsession Has Gone Too Far |
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Written by <a href="index.php?option=com_comprofiler&task=userProfile&user=29990"><span class="small">Trevor Timm, Guardian UK</span></a>
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Wednesday, 17 September 2014 12:57 |
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Timm writes: "In lawsuits challenging NSA mass surveillance, torture and drone strikes on Americans in recent years, the US government has turned what was once a narrow legal privilege into an immunity trump card - a kind of get-out-of-jail-free card for 'matters of national security.' And now, despite publicly promising to restrict its use, attorney general Eric Holder is trying to expand the power even further."
Eric Holder, the Attorney General of the United States. (photo: AP)

The Billionaire, the NSA and the No-Fly List: America's 'State Secret' Obsession Has Gone Too Far
By Trevor Timm, Guardian UK
17 September 14
When lawsuits start hunting for the truth, the Obama administration shuts them down with one overreaching power and three words: just trust us
n lawsuits challenging NSA mass surveillance, torture and drone strikes on Americans in recent years, the US government has turned what was once a narrow legal privilege into an immunity trump card – a kind of get-out-of-jail-free card for “matters of national security”. And now, despite publicly promising to restrict its use, attorney general Eric Holder is trying to expand the power even further.
In Monday’s New York Times, Matt Apuzzo wrote about a fascinating – if bizarre and publicly mysterious – court case between two private parties in which the US justice department has invoked the so-called state secrets privilege. A Greek shipping magnate has accused an advocacy group pushing for sanctions on Iran of lying about him, but the government argues that the case must be dismissed with hardly an explanation, citing only a “concerned federal agency”.
Why a private foundation with no contracts or current affiliations with the government would be holding on to classified information remains unknown. And Holder refuses to disclose the agency demanding secrecy, the type of information he wants secret, or even the basis for invoking the state secrets clause (which, by the way, is an invention of the US supreme court from a 1953 case that was later proved to be based on a lie). Whether everything the plaintiff is alleging is true and provable and illegal does not matter in the eyes of Holder’s justice department. In other words: you can know absolutely nothing, Just Trust Us™. Or, as the plaintiff’s attorney in the case told the Times:
There is no precedent, literally, for what the government is attempting to do.
While the case of the Greek billionaire and the anti-nuclear pressure group is certainly novel in its application of state secrets (and might involve the CIA), the Obama justice department has been using the controversial clause to squash cases of more significant consequence for years. After the Bush administration was widely criticized for expanding the privilege to dismiss entire cases before hearing evidence, Holder allegedly created a policy for restricting its use to all but the most critical national-security cases when he first came into office. But, alas, Holder has since proceeded to shut down the exact types of cases for which George W Bush was so harshly criticized.
And it doesn’t even matter if the basic facts of the case are already public.
Take, for instance, the case brought by the Electronic Frontier Foundation (EFF) – my former employer – challenging NSA phone surveillance. It’s been going on since long before the Edward Snowden revelations, and the government has long been invoking the state secrets privilege to argue the court should dismiss EFF’s case before ever getting to the question of whether the NSA’s mass surveillance programs are unconstitutional. Given that the Obama administration has profusely proclaimed its commitment to transparency after all the NSA information went public, you’d think it would look preposterous if they continued to claim it’s a secret in court.
Nope. Instead, Obama’s justice department doubled down on protecting the truth about the NSA. In EFF’s case, the government is still claiming that NSA’s phone and internet surveillance programs are secret and cannot be challenged in open court.
“For example,” EFF senior attorney Kurt Opsahl told me on Monday, “they say that the Verizon order that the Guardian published does not waive the state secrets Privilege for the whole program, or even for Verizon, or even for Verizon Business – only for Verizon Business for that three-month time period.” So despite the fact that the Director of National Intelligence literally told the public on Friday that the metadata program has been renewed for another 90 days, the government still considers many of the underlying facts of that metadata program a “state secret” in court.
In the past year, the Justice Department has also invoked its egregiously anti-transparency trump card in two cases that involve people challenging the “no-fly list”, the secret government document that keeps tens of thousands of people from boarding airplanes in the United States. While Holder wrote in sworn affidavits that the information he was seeking to protect “could reasonably be expected to cause significant harm to national security”, the information has since become public, and it looks like Holder was abusing the privilege once more.
In one case, the government used the state-secrets privilege despite knowing the only reason a woman was originally added to the no-fly list was because an FBI agent “checked the wrong boxes” nine years earlier. In another case, Holder said he must invoke the privilege even for the unclassified no-fly list guidelines, calling them “a ‘clear roadmap’ to the government’s terrorist-tracking apparatus”. When the Intercept published a leaked set of the guidelines in July, they proved the roadmap’s rules to be so vague and amorphous that they look virtually impossible for anyone to avoid.
Multiple lawsuits brought by the ACLU over the US government’s ability to kill American citizens overseas without a judge or jury have been stymied for similar reasons. A series of cases involving US complicity in kidnapping and torture, all of which were documented in excruciating detail using already-public sources, were also shut down during the Bush administration.
When the Obama administration took over the final case accusing the Bush administration of torture and invoked state secrets again, the judges were visibly taken aback. Didn’t matter: on appeal, it was thrown out of court yet again.
“The only place in the world where these claims can’t be discussed,” ACLU’s Ben Wizner said at the time, “is in this courtroom.”
What’s truly revolting about this abuse of the state secrets privilege is that it used to be an issue Democrats ran against. President Obama said he would reform it in his 2008 campaign, and vice president Joe Biden co-sponsored a bill to do just that. All the Democrats on the Senate Judiciary Committee voted for state secrets reform as well, explicitly citing NSA wiretapping and torture as things that should never be kept classified from the American people – that should always be able to face a challenge in court.
What have we heard since? Not a peep.

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FOCUS | Richard Posner Remains Tired Of Your Bullsh#t |
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Written by <a href="index.php?option=com_comprofiler&task=userProfile&user=11104"><span class="small">Charles Pierce, Esquire</span></a>
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Wednesday, 17 September 2014 11:03 |
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Pierce writes: "Over the weekend, something called the Association of American Physicians and Surgeons, an astroturf assemblage of doctors opposed to the Affordable Care Act (and health-care reform generally) that has some interesting adherents (4:58...4:59...) took the government to court to argue against the ACA's 'government takeover of medicine.'"
Judge Richard Posner. (Nathan Weber/NYT)

Richard Posner Remains Tired Of Your Bullsh#t
By Charles Pierce, Esquire
17 September 14
ver the weekend, something called the Association of American Physicians and Surgeons, an astroturf assemblage of doctors opposed to the Affordable Care Act (and health-care reform generally) that has some interesting adherents (4:58...4:59...) took the government to court to argue against the ACA's "government takeover of medicine." At issue was the fact that, rather than comply with the ACA because freedom, some of these jamokes accept only cash payment for their services, and, further, the plaintiffs argued with relatively straight faces that they were bringing their action in opposition to the tyranny of the individual mandate. Since the administration has delayed the implementation of the employer mandate, they argued, it is unfair for it to implement the employer mandate. Also, they are unfairly prejudiced by the law because of their choice to accept only cash payments. They may have filed a posthumous amicus brief from Lewis Carroll in support of this nonsense, for all I know.
The federal court of the Seventh Circuit seemed less than amused.
U.S. District Judge William Griesbach threw out the case, noting that even if association members have "cash practices" that do not accept health insurance payments -- and thus would be prejudiced by the Act -- this is incidental to the tax regime. "Plaintiffs typically lack standing to litigate the tax obligations of others," he wrote.
After which, Judge Richard Posner uncrated the meat ax and went to work.
Today, Judge Richard Posner drove this logic home. "You're suggesting a breathtaking expansion of jurisdiction, aren't you?" he asked. "You're suggesting that anyone with a potential economic injury from a law can bring a suit. Where would you stop?"
"The stopping point is if someone is not being regulated by a particular statute," plaintiff's attorney Andrew Schlafly replied. "This is a regulation of the medical field, not some remote tax." He then argued that people forced to buy insurance will never seek out cash practices in order to avoid paying for healthcare twice. This did not satisfy Posner. "That's like saying people who get food stamps don't pay as much for groceries."
As my friend Olbermann used to say, that one's deep and I don't think it's playable.
Of course, the strategy to wreck the health care of the millions of people who now have it, thanks to the ACA, is predicated on bringing many lawsuits in many courts before many judges on many grounds, spurious or not. Michael Greve, a visiting layabout...er... "scholar" from the American Enterprise Institute, gave that game away in 2010.
"This bastard has to be killed as a matter of political hygiene. I do not care how this is done, whether it's dismembered, whether we drive a stake through its heart, whether we tar and feather it and drive it out of town, whether we strangle it. I don't care who does it, whether it's some court some place, or the United States Congress. Any which way, any dollar spent on that goal is worth spending, any brief filed toward that end is worth filing, any speech or panel contribution toward that end is of service to the United States." Mr. Greve went on to urge a litigating strategy that looked beyond the mandate to "concentrate on bits and pieces of this law."
Given that calm and reasoned approach to political argument, sooner or later, Mr. Greve's side of the debate was bound to bring some risible arguments to the court, but this one is simply a gem. "Your Honor, this law unfairly prejudices my clients because of actions they freely took in opposition to it." It's like seeing the residents of Galt's Gulch appeal to the zoning board.

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FOCUS | The Koch Brothers' 3-Step Plan to Conquer the Next Generation |
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Written by <a href="index.php?option=com_comprofiler&task=userProfile&user=7118"><span class="small">Carl Gibson, Reader Supported News</span></a>
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Wednesday, 17 September 2014 09:45 |
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Gibson writes: "Right-wing oligarchs dominating our political process, like the Koch Brothers, are wealthy beyond measure."
David Koch and his brother Charles are trying to buy young people's minds. (photo: Brendan McDermid/Reuters/Corbis)

The Koch Brothers' 3-Step Plan to Conquer the Next Generation
By Carl Gibson, Reader Supported News
17 September 14
ight-wing oligarchs dominating our political process, like the Koch Brothers, are wealthy beyond measure. Combined, Charles and David Koch are worth over $100 billion, and make $6 million per hour. That translates to over $1600 per second, which is enough to feed someone on food stamps for an entire year. Compare that figure to the $13 million that former Kroger CEO David Dillon earned in his last year with the company, which he called “ludicrous.” Their only problem is their age – David Koch is 74, Charles Koch is 78. For their class to maintain power over American politics and government, they have to make investments in future generations to ensure their ideology will live on beyond them.
It’s been well-documented by now how the Koch Brothers are sponsoring economic programs at colleges and universities around the country. By itself, this could be interpreted as philanthropy. There’s nothing inherently wrong with a billionaire donating some of his wealth to education. But the greater strategy in the Kochs’ chess game isn’t just to make themselves wealthier, but a far more sinister one. That strategy can be broken down into three steps:
1. Defund Public Schools
America’s public schools and universities are all being deprived of state tax dollars slowly but surely. This is not an accident. Model bills written by the Koch-funded American Legislative Exchange Council (an innocuous-sounding merger of right-wing state legislators and corporate lobbyists) accomplish this goal threefold. First, model legislation aimed at giving corporations huge tax breaks gets passed. Then, model resolutions stating that balancing the budget must take priority over funding public institutions are passed. Finally, ALEC legislators use those resolutions as justification to slash public services, like schools, to the bone in order to plug the gaping budget hole made by corporate tax breaks.
Florida governor Rick Scott has slashed school funding while simultaneously advocating for over $140 million in new corporate tax breaks. Pennsylvania governor Tom Corbett has given out $3 billion in corporate tax breaks during his tenure, and has cut education funding by $1 billion. Wisconsin governor Scott Walker cut schools by $1.2 billion and has given out $570 million in corporate tax breaks. On its own, this could be seen as, at best, a radical gamble in economic growth with schools on the line. But when this tactic is repeated in multiple states in different geographical regions, it’s apparent there’s a strategy at play.
2. Make Schools Dependent on Private Entities for Money
At Florida State University, emails from an economics professor in 2008 show that the Koch Brothers were willing to donate millions to the university through their foundation, but only if they had a say in the curriculum that was taught and in the hiring of professors to teach the curriculum. FSU took the donation, and consulted with the Koch Foundation on who would be hired to teach courses that largely vilified government services and promoted the Kochs’ unique brand of libertarian free market ideology. At the time, Florida’s public universities had seen their funding levels fall by 41 percent over the previous five years.
Public universities traditionally depend on state government funding for 53 percent of their operational budgets. But without a dependable key funding source like state governments, colleges and universities are forced to raise tuition, which results in only a privileged class of students able to attend college. Public universities are also forced to come crawling to private interests like Koch-funded foundations for funding, which always comes with strings attached.
3. Ingrain students with Greed-Based Ideology
To be blunt, the Kochs’ economic philosophy is essentially, “Fuck you, I’ve got mine.” In 1980, David Koch ran for vice president on the Libertarian Party ticket. Some of his proposals included killing Medicare and Medicaid, eliminating federal campaign finance laws, doing away with all environmental protections, abolishing the minimum wage, and privatizing water systems, railways, and the post office. Koch also called for eliminating laws that prevent creditors from gouging debtors with high interest rates, deregulating private health insurance companies, and killing the food stamp program.
In the college and high school courses on Libertarian thought offered by the Institute for Humane Studies, a Koch-funded think tank, many of these ideas are taught to unsuspecting and impressionable young students. As the Center for Public Integrity reported, students are taught about how sweat shop workers in third world countries don’t have it so bad, how the federal minimum wage kills jobs, and how the Environmental Protection Agency is bad for the environment.
With this strategy, students attending college would mistakenly interpret such greed-inspired drivel as scholarly research to be taken as gospel. Upon graduation, it can be assumed they would start families and impress their ideologies upon their children. Colleges themselves would be transformed from institutions that cherish and develop critical thinkers into additional cogs of the corporate machine, with corporate-approved professors churning out obedient workers instead of independent-minded leaders.
This strategy is nothing short of generational conquest. It is only by insisting that our public schools be properly funded by our tax dollars, instead of by oligarchs with their own agendas, that we can stop the corporate brainwashing of our kids.
Carl Gibson, 27, is co-founder of US Uncut, a nonviolent grassroots movement that mobilized thousands to protest corporate tax dodging and budget cuts in the months leading up to Occupy Wall Street. Carl and other US Uncut activists are featured in the documentary We're Not Broke, which premiered at the 2012 Sundance Film Festival. Carl is also the author of How to Oust a Congressman, an instructional manual on getting rid of corrupt members of Congress and state legislatures based on his experience in the 2012 elections in New Hampshire. He lives in Sacramento, California.
Reader Supported News is the Publication of Origin for this work. Permission to republish is freely granted with credit and a link back to Reader Supported News.

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