Fold/Spindle/Mutilate 2.1

Ryan Grim | HuffPost Reporting From DC

Members of Congress are pushing for access to confidential reports filed over the past several years by a government-appointed auditor who has been sitting in on AIG deliberations.

The auditor, whose presence was first reported by the Wall Street Journal, was installed as the result of a settlement that deferred prosecution of AIG for allegedly helping financial institutions fudge their books. Deferring prosecution was the Bush administration’s preference when it came to enforcing financial regulations.

“Whatever rationale there may have been for confidentiality doesn’t appear to apply anymore,” Rep. Brad Miller (D-N.C.) told the Huffington Post. “If the idea was that having a government appointed lawyer sitting in the board room would make sure that AIG went forth and sinned no more, it obviously didn’t work out that way.”

The House Oversight and Government Reform Committee has requested documents.

Other Democrats in Congress are also requesting the documents, aides say, including Rep. Elijah Cummings (D-Md.).

“That would be some real interesting reading, if we got everything from that mole,” said Cummings, who’s been chasing AIG since the initial government seizure. “We get so much incomplete information from AIG and maybe this is a way to connect all the dots.”

The government should be able to abrogate whatever settlement it entered into, members of Congress argue, because it now represents both sides of the agreement. “We now own AIG. We are by far the majority stock holder. If there is a reason still for not making public what he saw and heard, I’d like to hear it,” said Miller.

Rep. Carolyn Maloney (D-N.Y.) agreed. “While there might be legal constraints that typically prevent at least some information from being disclosed outside the government, these extraordinary circumstances call for greater transparency. After all, AIG is now more than 80 percent owned by American taxpayers,” she said.

“It was a deal between the corporation and the government,” Miller said. “It was obviously intended to protect the corporation. We can waive that now since we own it. If you’re 79.9 percent stockholders and you say you want to waive confidentiality, you waive confidentiality.”

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Rachel Weiner
rachelwe@huffingtonpost.com | HuffPost Reporting From DC

The high-profile policy duel between Tim Geithner and Paul Krugman came to a head on Sunday. Following the Treasury Secretary’s appearance on ABC’s “This Week (read/watch that interview here), Krugman participated in the panel session and made clear that he hadn’t yet been convinced.

“It’s a plan to rearrange the deck chairs and hope that that keeps us from hitting the iceberg,” the Nobel Prize-winning economist said of Geithner’s bank plan. “They’ve done some things very fast, but they’ve been very small things … There’s no way this could be enough.”

Watch:

On “Meet the Press,” Geithner was asked to respond to the critiques Krugman has written about Treasury’s financial rescue proposal. Geithner defended the bad assets buying plan, which Krugman called “trash for cash,” arguing that it was a “critical” part of the administration plan. He asserted that the alternatives were worse. “Life is about choices, about alternatives,” the Treasury Secretary said. “This is a better way to help get the markets working again.”

“The investors’ money is at risk. They can lose all their money. Now, again, you have to compare these to the alternatives. The alternative scheme, the government in our view, will be taking on much more risk. The taxpayer will be much more exposed to losses. Life is about choices, about alternatives. This is a better way to help get the markets working again. … What we’re trying to do is get the entire financial system, our complicated system, working again so that we get credit where it needs to go in the economy and that requires strengthening our banking system. It requires making sure there’s enough capital to withstand a deeper recession, and we’re going to make sure that capital comes with conditions to make sure banks restructure, that there’s accountability for management, that the firms emerge stronger not weaker, and there are tough conditions to protect the taxpayer. … This is not going to solve our problems, but it is a critical part of the solution and we think it’s the best approach to protect the taxpayer and make sure that the market is working with us.”

(Read the article)

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David Edwards and Stephen C. Webster

President Barack Obama said all the right things on 60 Minutes, according to Jonathan Turley. But no mere verbal rebuff to the former vice president will see the law upheld.

If Obama would step out of the way and allow prosecutors to look at evidence of alleged Bush administration war crimes, “it would be the shortest investigation in history,” Turley said on a Monday episode of MSNBC’s The Rachel Maddow Show.

President Obama, appearing Sunday on the CBS news program, said the former vice president’s policies on the treatment of prisoners captured in President Bush’s terror war are “unsustainable” and had caused “incredible damage to our image and position in the world.”

“The reason Obama seems very irritated by it is that he is responsible for the conversation,” said Turley, a constitutional scholar and George Washington University professor. “Because he’s the one that is blocking a criminal investigation of Vice President Cheney and President Bush and other Bush officials. It is like a bank robber calling up and asking him to debate bank robbery.”

It was only Dec. 15 when the former vice president admitted he approved the interrogation tactics which many, including the international Red Cross, have called torture.

Even Senate Armed Services Committee Chairman Carl Levin (D-MI) called Cheney out for his remarks.

“When the Vice President of the United States says that he believes … waterboarding is ‘appropriate,’ there is no other conclusion that I can reach other than I know it’s a form of torture,” said Sen. Levin. “It’s been acknowledged as a form of torture I think since the Inquisition.”

Former Secretary of State Condoleezza Rice was the first top-ranking Bush administration official to admit that discussions on the techniques took place in 2002 and 2003.

“These are not just our values,” said Turley. “They are the law.

(Read the article)

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Huffington Post via WSJ |  Julie Satow

The Federal Reserve is in the uncomfortable position of rewarding those who helped cause the financial crisis.

The government’s latest rescue effort involves issuing more than $7 billion in bonds. Each of these bonds will have to be rated by at least two of the three largest ratings agencies: Moody’s Investors Service, Standard & Poor’s and Fitch Ratings.

This ratings work will generate fees for the agencies, potentially totaling hundreds of millions of dollars, the Wall Street Journal reports.

These firms dominate the credit-ratings business, and their imprimatur is considered crucial for investors that buy bonds and asset-backed securities. They have been vilified in recent months because their ratings on mortgage securities were widely off base.
Now the government is in the uncomfortable position of rewarding these same firms through a new program that will result in numerous companies issuing securities. If the ratings companies are wrong this time around, the Federal Reserve and the Treasury — and therefore taxpayers — will be on the hook for some losses.

According to the Journal, the ratings agencies typically charge as much as $120,000 for every $100 million in bonds they rate. Under the government’s latest program to ease the credit crisis, if it is extended to the full $1 trillion, as the government plans, ratings agencies’ fees could total from $400 million to as much as $1.2 billion.

To prevent taking on too much risk, the Fed is also requiring that its loans only be used to buy bonds that are rated the least risky, or triple-A. This could give the agencies some incentive to skew the ratings of the bonds higher.

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It’s very much like the regular Monopoly game — only better — because this one uses real money, provided courtesy of the taxpayers.

By William Greider, The Nation.

President Obama has invented a new board game for Wall Street money guys to play that promises to be a lot of fun. It’s very much like the regular Monopoly game that kids play — only better — because this one uses real money, provided courtesy of the taxpayers. The best thing about Obama’s game is nobody loses. Usually, the winner in Monopoly is the one who winds up with the most money. In the Obama version, the losers get any losses back from the government at the end of the game. The president has promised.

The guy is a genius. He located these two whiz kids — Tim and Larry — who are smarter than God about financial matters. President Obama commanded the advisors to solve the financial mess, raise the zombie banks from the dead and start the good times rolling again. This game is what they came up with. It’s a very complicated game and not everyone can understand it. But the Wall Street titans smell hope. For this Monopoly set has no “Go to Jail” card in the deck.

It starts just like the real Monopoly game. The president hands out tall stacks of cash to all the players — hedge funds, insurance companies, big-time investors, any well-heeled capitalist with a serious taste for acquiring greater wealth. The players then roll the dice and move their little titan icons around the Monopoly board. They can buy up properties wherever they land, sort of like landing on Boardwalk and Park Place. Only in this case the properties are the nearly worthless financial assets held by the country’s leading banks, like the mortgage-backed securities now known as “toxic assets.”

The banks are glad to be rid of their rotten stuff and will begin to feel better about lending again to commoners. The titans accumulate a stack of property cards and sell them off to other players at extraordinary profits. At least this is what Tim Geithner and Larry Summers told the president to expect and he believed them. Before you know it, everyone will start feeling better about themselves. The once worthless financial paper that no one would buy will begin glowing with rising value. Now wealthier titans and much relieved bankers will buy more cars and houses, hire more gardeners. More jobs, more hope, everything starts rolling toward national recovery. Everyone is a winner, even the losers.

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Pepe Escobar: If Geithner’s plan does not work, the President sinks

President Obama’s destiny – more than his foreign policy decisions – will be sealed by how he deals with the US financial crisis, argues Pepe Escobar. The verdict of top economists on Treasury Secretary Tim Geithner’s new PPPIP has not been auspicious. Some speak of taxpayer rip-off while Nobel Prize winner Paul Krugman foresees a “lost decade of zombie banks”. The President has been trying to appease Wall Street while at the same time appeasing America’s anger directed at anything bank bailout-related. On a global level the Chinese have made it known their patience with America’s addiction to debt has limits. The upcoming G-20 meeting in London is bound to discuss more radical steps, while back in the US some already dream of a new saviour, post-Geithner.

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by Chad Rubel

Is Jake DeSantis an economic hero?

Well, the executive in AIG’s financial-products division who sent in his resignation letter to The New York Times did receive a standing ovation from his colleagues. This included his boss, who has been seen in a Che Guevara T-shirt. After all, they might have thought, “here was someone who stood up when the bad, evil people tried to take away our million-dollar bonuses even though they were based on transactions we couldn’t back up. Who cares if taxpayer money paid for my bonus, it’s mine.”

But to whom does the bonus money belong? Of all the possible parties, the least likely answer is Jake DeSantis.

Of course, possession is 9/10 of the law, and DeSantis does have his bonus money. But it’s not really his.

We, the taxpayers, bailed out his company. We own 80% of his company, and it would have been more except Republicans cried out that nationalization would be bad, as opposed to this sewer we’re swimming in now. Oh, and the bonus is likely based on transactions with no financial backing.

But DeSantis wants to be “fair” about it, since we are giving him and his co-workers grief. DeSantis is willing to donate the after-tax proceeds, all $742,006.40 of it.

That is why I have decided to donate 100 percent of the effective after-tax proceeds of my retention payment directly to organizations that are helping people who are suffering from the global downturn. This is not a tax-deduction gimmick; I simply believe that I at least deserve to dictate how my earnings are spent, and do not want to see them disappear back into the obscurity of A.I.G.’s or the federal government’s budget. Our earnings have caused such a distraction for so many from the more pressing issues our country faces, and I would like to see my share of it benefit those truly in need.

On March 16 I received a payment from A.I.G. amounting to $742,006.40, after taxes. In light of the uncertainty over the ultimate taxation and legal status of this payment, the actual amount I donate may be less — in fact, it may end up being far less if the recent House bill raising the tax on the retention payments to 90 percent stands. Once all the money is donated, you will immediately receive a list of all recipients.

Doesn’t this sound like the end of a Jimmy Stewart movie? Not quite.

He doesn’t want it to “disappear back into the obscurity of A.I.G.’s or the federal government’s budget.” Now I’m no tax expert, but let’s say his bonus, pre-tax, is about $1.1 million, maybe $1.2 million. What could that kind of money be used toward in the federal government’s budget? It would be half a drop in the overall budget, but it could mean the construction of a crumbling school or extra money toward scientific research or rehabbing a veterans’ hospital. You know, the obscure parts of the federal government’s budget.

(Read the article)

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The transfer of $12.9 billion from AIG to Goldman looks fishier and fishier.

By Eliot Spitzer

The AIG scandal is getting ever-more disturbing. Goldman Sachs’ public conference call explaining its trading relationship and exposure with AIG established once again that Goldman knows how to protect itself. According to Goldman, even if AIG had failed, Goldman’s losses would have been minimal.

How did Goldman protect itself? Sensing AIG’s weakening capital position through 2006 and 2007, Goldman demanded more collateral from AIG and covered outstanding risk with instruments from other firms.

But this raises two critical questions. The first is why did $12.9 billion of taxpayer money go from AIG to Goldman? What risk—systemic or otherwise—was being covered? If Goldman wasn’t going to suffer severe losses, why are taxpayers paying them off at 100 cents on the dollar? As I wrote earlier in the week, the real AIG scandal is that the company’s trading partners are getting fully paid rather than taking a haircut.

Goldman’s answer is that it was merely taking a commercial position—trying to avoid any losses at all on its AIG positions. I suppose we can hardly expect Goldman to reject government assistance in the form of pure cash that seems to have had no strings attached.

But what were the government officials possibly thinking? The only rationale for what we should call the “hidden conduit bailout” to AIG’s trading partners is that the cascading effect of AIG’s inability to pay would have been devastating. But Goldman has now said very clearly there would have been no cascade. Not even a ripple.

Is the same true of AIG’s other counterparties, including several foreign banks? What examination of the impact of an AIG failure did federal officials undertake before making their decision to spend countless billions bailing out AIG and its trading partners?

(Read the article)

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Liddy on AIG’s Long Road Ahead

In an exclusive interview with BusinessWeek, CEO Edward Liddy says he expects AIG’s turnaround to take years, but adds, “This is not a life job for me”

By Joseph Weber

Edward M. Liddy, the would-be rescuer of American International Group (AIG) who has become a target of wrath over Wall Street excesses and the ravages of the recession, knows all too well what is driving that anger. “There’s fear in America,” says Liddy, who came out of retirement last September to run AIG for the government for $1 a year. “People are very concerned about their jobs, their homes, their pensions.”

And Liddy, who is no fan of the multimillion-dollar bonuses agreed to by his predecessors at AIG even while he tolerates them, knows very personally what such fear and want mean. Liddy, who earned more than $130 million over eight years leading Allstate (ALL) until 2007, grew up so poor that he, his mother, and sister were thrown out of their homes at times after his father died when he was 12. There were days, he says, when food was short in his native New Brunswick, N.J. “We’d have dinner for three and food for two and my mother would say, ‘I don’t feel well right now. You two go ahead,’ recalls Liddy, now 63. “You can believe I know the angst of the American taxpayer and what’s happening in economically uncertain times.”

But rage and fear, he says, should not blind people to the best way out of the AIG mess. In an exclusive interview with BusinessWeek, the reluctant AIG chief says he and others at the company want only to pay off the $80 billion that the government has poured into the company so far and help it make money on another $50 billion in investments the government has made in AIG-related operations.

(Read the article)

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By Jane Hamsher

Timothy Geithner’s new TALF/PPiP/FDIC* plan, like all his other plans, seems designed to shovel billions into the coffers of the very same bankers who got rich on the mortgage bubble. When the public gets a glimpse of the tip of this giant iceberg, as they did with the AIG bonuses, they’re dismissed as angry rubes who Just Don’t Understand How Things Work. But his latest scheme is proof that they are absolutely right.

Despite Geithner’s contention that banks are simply “burdened with bad lending decisions,” most Americans understand at this point that there was serious fraud involved in the inflation of the mortgage bubble. The Justice Department and the FBI are currently investigating Countrywide for accounting fraud, insider trading and consciously lending money to people they knew couldn’t afford to repay it. Meanwhile, AIG is suing Countrywide because they have to pay off hundreds of millions of dollars in insurance claims because Countrywide just flat out lied about the mortgages they were issuing:

United Guaranty said in the complaint that it had reviewed loan files that showed that most mortgages covered by 11 policies for asset-backed securities were either underwritten in violation of Countrywide’s own guidelines or contained defects, such as missing documents, misrepresented credit scores or false social security numbers.

And who has the privilege of paying off AIG’s insurance policies? That would be American taxpayers.

Stanford Kurland was the President of Countrywide during its salad days, when the predatory lending practice of low introductory “teasers” inflated Countrywide’s mortgage portfolio from $62 billion to $463 billion. Bank of America, which bought Countrywide last year, has already paid out $8.7 billion to settle suits brought by states because of Countrywide’s fraudulent practices, including hidden fees and false claims like “no closing costs.” The Illinois suit examined one mortgage broker’s sales of Countrywide loans and found the “vast majority of the loans had inflated income, almost all without the borrower’s knowledge.”

Just like any Ponzi scheme, the first ones out get rich. And Stanford Kurland got rich on Countrywide, cashing out to the tune of $200 million.

So where is Kurland today? Is he in jail? Well, no. He’s going to get rich out of Timothy Geithner’s new scheme. From the New York Times:

(Read the article)

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Manu Raju Manu Raju

Senate Majority Leader Harry Reid said Friday that John Roberts misled the Senate during his confirmation hearings by pretending to be a moderate — and that the United States is now “stuck” with him as chief justice.

“Roberts didn’t tell us the truth. At least Alito told us who he was,” Reid said, referring to Samuel Alito, the second Supreme Court justice nominated by President George W. Bush. “But we’re stuck with those two young men, and we’ll try to change by having some moderates in the federal courts system as time goes on — I think that will happen.”

Reid’s comments, which came during a wide-ranging discussion hosted by the Christian Science Monitor, reflect Democratic concerns that Roberts presented himself as a neutral arbiter of the law but has wielded a relentlessly conservative agenda. Republicans reject the attacks, saying Roberts has been a fair judge and has been consistent in his opinions.

Although Reid said that Democrats will try to put moderates on the bench, he said he will not try to deny Republicans the right to filibuster nominees. In 2005, then-Majority Leader Bill Frist threatened to eliminate the filibuster, sparking a furious reaction by Reid and other Democrats who said the so-called nuclear option would quash the rights of the minority.

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Joseph Stiglitz lambasted the White House bailout plan for Wall Street this morning.  It’s a brutal rebuttal to the lies and half-truths we were fed all day yesterday by Timmaaay’s minions.  Geithner’s plan is a thinly-veiled attempt to funnel even more taxpayer cash directly onto the balance sheets of failed banks.

It is intellectually dishonest and morally bankrupt.  Congress voted a certain amount for TARP, and now Geithner is multiplying that sum without going back to Congress by doing all manner of clever-clever things with FDIC guarantees.  That might be a good way of raising lots of cash for the banking system, but it’s a very bad way of getting political support.

From the Reuters interview:

The U.S. government plan to rid banks of toxic assets will rob American taxpayers by exposing them to too much risk and is unlikely to work as long as the economy remains weak, Nobel Prize-winning economist Joseph Stiglitz said on Tuesday.

“The Geithner plan is very badly flawed,” Stiglitz told Reuters in an interview during a Credit Suisse Asian Investment Conference in Hong Kong.

U.S. Treasury Secretary Timothy Geithner’s plan to wipe up to US$1 trillion in bad debt off banks’ balance sheets, unveiled on Monday, offered “perverse incentives,” Stiglitz said.

The U.S. government is basically using the taxpayer to guarantee against downside risk on the value of these assets, while giving the upside, or potential profits, to private investors, he said.

“Quite frankly, this amounts to robbery of the American people. I don’t think it’s going to work because I think there’ll be a lot of anger about putting the losses so much on the shoulder of the American taxpayer.”

(Read the article)

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Attorney General Andrew M. Cuomo of New York said Thursday afternoon that he was widening his investigation of the American International Group to examine whether its trading counterparties improperly received billions of dollars in government money from the troubled insurer.

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GRITtv’s Laura Flanders talks to Matt Taibbi of Rolling Stone and Robert Johnson former managing director of Soros Funds Management. Johnson, who has known Geithner for more than 25 years says that after Monday’s performance he should resign.

Watch This!

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By Tony Barber in Brussels and Edward Luce in Washington

European Union hopes for a new era in relations with the US were thrown into chaos on Wednesday when the holder of the EU presidency condemned American remedies for the global recession as “the road to hell”.

Barely a week before Barack Obama is due to arrive in Europe on his first official visit as US president, Mirek Topolanek, the Czech Republic’s prime minister, put the 27-nation EU on a collision course with Washington.

His attack compounded the confusion that has engulfed EU policy after the Czech leader lost a no-confidence vote in the country’s parliament on Tuesday, forcing him to offer his government’s resignation midway through its six-month EU presidency.

Mr Topolanek said EU leaders had been disturbed at a summit in Brussels last week to hear calls from Tim Geithner, the US Treasury secretary, for more aggressive policies to fight the global downturn.

“The US Treasury secretary talks about permanent action and we, at our spring council, were quite alarmed at that . . . The US is repeating mistakes from the 1930s, such as wide-ranging stimuluses, protectionist tendencies and appeals, the Buy American campaign, and so on,” he told a European parliament session in Strasbourg. “All these steps, their combination and their permanency, are the road to hell.”

US officials made no comment on the remarks. But the Obama administration says it took great pains to ensure that the Buy American provisions in the $787bn (€579bn) stimulus that the president signed into law last month were consistent with World Trade Organisation rules. It followed, therefore, that any attempt to make them permanent would continue to be consistent with WTO rules.

EU diplomats said it was the most extraordinary outburst from a political leader in charge of running the EU’s affairs since Silvio Berlusconi, Italy’s prime minister, caused uproar in 2003 when he likened a German socialist member of the European parliament to a Nazi concentration camp guard.

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AIG failed because it sold large amounts of credit default swaps (CDS) without properly offsetting or covering their positions.

By George Soros, The Financial Times

In all the uproar over AIG, the most important lesson has been ignored. AIG failed because it sold large amounts of credit default swaps (CDS) without properly offsetting or covering their positions. What we must take away from this is that CDS are toxic instruments whose use ought to be strictly regulated: Only those who own the underlying bonds ought to be allowed to buy them. Instituting this rule would tame a destructive force and cut the price of the swaps. It would also save the U.S. Treasury a lot of money by reducing the loss on AIG’s outstanding positions without abrogating any contracts.

CDS came into existence as a way of providing insurance on bonds against default. Since they are tradable instruments, they became bear-market warrants for speculating on deteriorating conditions in a company or country. What makes them toxic is that such speculation can be self-validating.

Up until the crash of 2008, the prevailing view — called the efficient market hypothesis — was that the prices of financial instruments accurately reflect all the available information (i.e. the underlying reality). But this is not true. Financial markets don’t deal with the current reality, but with the future — a matter of anticipation, not knowledge. Thus, we must understand financial markets through a new paradigm which recognizes that they always provide a biased view of the future, and that the distortion of prices in financial markets may affect the underlying reality that those prices are supposed to reflect. (I call this feedback mechanism “reflexivity.”)

With the help of this new paradigm, the poisonous nature of CDS can be demonstrated in a three-step argument. The first step is to acknowledge that being long and selling short in the stock market has an asymmetric risk/reward profile. Losing on a long position reduces one’s risk exposure, while losing on a short position increases it. As a result, one can be more patient being long and wrong than being short and wrong. This asymmetry discourages short-selling.

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An encampment of tents under an overpass in Fresno. More Photos >

By JESSE McKINLEY

FRESNO, Calif. — As the operations manager of a outreach center for the homeless here, Paul Stack is used to seeing people down on their luck. What he had never seen before was people living in tents and lean-tos on the railroad lot across from the center.

“They just popped up about 18 months ago,” Mr. Stack said. “One day it was empty. The next day, there were people living there.”

Like a dozen or so other cities across the nation, Fresno is dealing with an unhappy déjà vu: the arrival of modern-day Hoovervilles, illegal encampments of homeless people that are reminiscent, on a far smaller scale, of Depression-era shantytowns. At his news conference on Tuesday night, President Obama was asked directly about the tent cities and responded by saying that it was “not acceptable for children and families to be without a roof over their heads in a country as wealthy as ours.”

While encampments and street living have always been a part of the landscape in big cities like Los Angeles and New York, these new tent cities have taken root — or grown from smaller enclaves of the homeless as more people lose jobs and housing — in such disparate places as Nashville, Olympia, Wash., and St. Petersburg, Fla.

In Seattle, homeless residents in the city’s 100-person encampment call it Nickelsville, an unflattering reference to the mayor, Greg Nickels. A tent city in Sacramento prompted Gov. Arnold Schwarzenegger to announce a plan Wednesday to shift the entire 125-person encampment to a nearby fairground. That came after a recent visit by “The Oprah Winfrey Show” set off such a news media stampede that some fed-up homeless people complained of overexposure and said they just wanted to be left alone.

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Huffington Post |  Julie Satow

The recent outcry over $165 million in post-bailout bonus payments has put AIG on the hot seat. But, in fact, the bonus disbursement is perhaps the least serious in a string of actions by the insurance giant that span six years and involve several cases of alleged fraud.

“AIG has a culture of complicity. “You don’t get into these kinds of problems by having a good corporate culture,” said Peter Morici, a professor at the University of Maryland School of Business and the former chief economist at the US International Trade Commission. “Clearly this company has had endemic problems and it’d be best if we broke it up and sold it off so others can run its parts.”

AIG is currently facing investigations by the New York Attorney General’s office, the Federal Bureau of Investigation, the Securities and Exchange Commission, and the British Serious Fraud Office.

And that is only in the last six months.

Here is a breakdown of the AIG rap sheet, present and past:

Current Investigations:

-The FBI, SEC, and the British Serious Fraud Office are investigating the AIG Financial Products Group for hiding its losses on investments related to derivatives known as credit default swaps. The group was headed by Joseph Cassano, the Brooklyn-born son of a cop, until he stepped down in February. It sustained a loss of more than $11 billion in the fourth quarter of 2008.

Cassano said of the group in August 2007: “It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of these transactions.”

This wasn’t Cassano’s first legal controversy. The Justice Department charged his unit in 2004 with helping another firm, PNC Financial Services, to conceal certain assets from its books. AIG settled the case and paid a hefty $80 million in fines.
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By Barbara Ehrenreich & Bill Fletcher Jr.

Socialism’s all the rage. “We Are All Socialists Now,”Newsweek declares. As the right wing tells it, we’re already living in the U.S.S.A. But what do self-identified socialists (and their progressive friends) have to say about the global economic crisis? The following essay will, we hope, kick off a spirited dialogue, with four replies in this issue and more to come here at TheNation.com.   –The Editors

If you haven’t heard socialists doing much crowing over the fall of capitalism, it isn’t just because there aren’t enough of us to make an audible crowing sound. We, as much as anyone on Wall Street in, say, 2006, appreciate the resilience of American capitalism–its ability to regroup and find fresh avenues for growth, as it did after the depressions of 1877, 1893 and the 1930s. In fact, The Communist Manifesto can be read not only as an indictment of capitalism but as a breathless paean to its dynamism. And we all know the joke about the Marxist economist who successfully predicted eleven out of the last three recessions.

But this time the patient may not get up from the table, no matter how many times the electroshock paddles of “stimulus” are applied. We seem to have entered the death spiral where rising unemployment leads to reduced consumption and hence to greater unemployment. Any schadenfreude we might be tempted to feel as executives lose their corporate jets and the erstwhile Masters of the Universe wipe egg from their faces is quickly dashed by the ever more vivid suffering around us. Food pantries and shelters can no longer keep up with the demand; millions face old age without pensions and with their savings gutted; we personally are consumed with anxiety about the future that awaits our children and grandchildren.

Besides, it wasn’t supposed to happen this way. There was supposed to be a revolution, remember? The socialist idea, prediction, faith or whatever was that capitalism would fall when people got tired of trying to live on the crumbs that fall from the chins of the rich and rose up in some fashion–preferably inclusively, democratically and nonviolently–and seized the wealth for themselves. Such a seizure would have looked nothing like “nationalization” as currently discussed, in which public wealth flows into the private sector with little or no change in the elites that control it or in the way the control is exercised. Our expectation as socialists was that the huge amount of organizing required for revolutionary change would create an infrastructure for governance, built out of–among other puzzle pieces–unions, community organizations, advocacy groups and new organizations of the unemployed and nouveau poor.

It was also supposed to be a simple matter for the masses to take over or “seize” the physical infrastructure of industrial capitalism–the “means of production”–and start putting it to work for the common good. But much of the means of production has fled overseas–to China, for example, that bastion of authoritarian capitalism. When we look around our increasingly shuttered landscape and survey the ruins of finance capitalism, we see bank upon bank, realty and mortgage companies, title companies, insurance companies, credit-rating agencies and call centers, but not enough enterprises making anything we could actually use, like food or pharmaceuticals. In recent years, capitalism has become increasingly and almost mystically abstract. Outside manufacturing and the service sector, fewer and fewer people could explain to their children what they did for a living. The brightest students went into finance, not physics. The biggest urban buildings housed cubicles and computer screens, not assembly lines, laboratories, studios or classrooms. Even our flagship industry, manufacturing autos, would require major retooling to make something we could use–not more cars, let alone more SUVs, but more windmills, buses and trains.

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