October, Tuesday 11, 2011

DOW – 16 = 11,416
SPX + a fraction = 1,195
NAS + 16 = 2583
10 YR YLD +=2.16%
OIL - .57 = 85.24
GOLD – 12.70 = 1664.20
SILVER + .10 = 32.24
PLAT – 5.00 = 1525.00

Wall Street lost its focus today. Instead of a laser-like concentration on the Rumor of the Day, Wall Street started thinking about Earnings Reporting Season where hope springs eternal and Alcoa takes its proper alphabetical position as the market leader. The aluminum producer posted net earnings were $172 million, or 15 cents per share, compared with $61 million, or 6 cents per share, a year earlier. Not bad, but income from continuing operations was also 15 cents per share, but down from 28 cents per share in the second quarter. Revenue rose 21 percent to $6.4 billion from a year earlier, but was 3 percent lower than the second quarter of this year as metals prices slumped sharply. Today, Alcoa was up .21 = 10.30, but in after hours trading Double-A slipped .50 = 9.80.

So, earnings reporting season is underway; a reflection of the economy; and the market gave us a nice little rally over the past few days – just enough for you to get your shorts on. 

Meanwhile, the Euro-Rumor of the Day didn’t find a good rumor to lift the markets. The European Stability Financial Stability Fund must be ratified by all 17 eurozone countries; so far 16 have signed off; today Slovakia’s government lost a confidence vote on the plan; so they will re-shuffle the Slovakian government and the opposition party is expected to approve the EFSF bailout. Wouldn’t it be something if Slovakia killed the bailout? They could; they won’t, but they could.

Meanwhile, inspectors from the European Union, IMF and European Central Bank said an 8 billion euros loan tranche should be paid to Greece; that should be enough to keep the country afloat for awhile. But they warned Greece had made only patchy progress in meeting the terms of a bailout agreed in May last year. And Germany said a decision on whether to make the aid payment was still open; meaning Greece will get the money but the Germans want to see the Greeks sweat for the money.

Meanwhile, the European Central Bank President Jean-Claude Trichet issued the dramatic warning, saying “The crisis is systemic and must be tackled decisively," Trichet went on to say, "The high interconnectedness in the EU financial system has led to a rapidly rising risk of significant contagion. It threatens financial stability in the EU as a whole and adversely impacts the real economy in Europe and beyond."

So we now have nearly universal consensus that Europe is a big mess, and then the rumor Mill took the afternoon off to enjoy the afternoon with a nice Bordeaux and tapas at the local bistro; even the Germans agreed they needed a little break for brats and beer – I mean it is October, and life is all about priorities.

Anonymous, you know the kind of strange computer generated voice that apparently was successful in hacking various websites from the CIA to Sony to the Arizona Department of Public Safety – and if Anonymous is listening today, when I say strange computer generated voice I mean that in the best possible way. Anyhow, Anonymous threatened to erase the NYSE from the internet. On Monday afternoon--the time of the threatened hack--the NYSE website twice slowed so significantly that it became all but unusable by visitors. It was not erased from the internet, but there’s always tomorrow.

The social movement known as Occupy Wall Street (OWS) is growing and too few of our government and corporate leaders are willing to examine closely what this movement is about. Instead, there’s a lot of mudslinging and labeling. The big complaint is the protesters are un-American (we have a long history in this country of placing this tag on legitimate dissent), or are moving towards "class warfare." Some critics claim that the group lacks clearly stated goals and policy objectives. In fact, this movement of dissent has exceedingly clear goals and objectives that our national leaders and corporate America ought to take seriously.

Here are a few of the goals and objectives of OWS.

Much of the protest focuses on inequalities in social and economic outcomes and on the sharp differentials in power between the super-rich in our society (the fraction of one percent of the population in corporate America with the power and resources to shape policies that disproportionately favor themselves), and the rest who feel totally incapable of effecting meaningful social and economic change. In 2011, one percent of the nation's population controlled roughly 40 percent of our society's wealth. The last time there was this much inequality was back in the 1920’s just before the Great Depression and then before that, the Gilded Age.

Meanwhile, the corresponding percentage of the population who are living in poverty is growing -- it is now greater than it has been in about 20 years. Median incomes for Americans have actually declined since the recession of 2008. The incomes of middle-class America have been stagnant for over 20 years. The United States is the most economically stratified economy among all developed nations.

There is the old advice that you should just pull yourself up by the bootstraps. Work harder – that’s the answer. But increasingly, that is not the answer. The playing field is not level.

In almost every struggle to improve the human condition, one of the main objectives has been to achieve equality of opportunity. One of the chief factors in progress is the destruction of special privilege. The essence of the struggle boils down to taking from some person, or class, or group of people the right to enjoy power, or wealth, or position, or immunity which has not been earned by service to their fellows. The conflict between people who possess more than they have earned and the people who have earned more than they possess is the key factor in progress. Our current struggle for progress pits ordinary citizens struggling for the right of self-government against special interests, who corrupt the workings of free government into machinery for defeating the popular will. The essence of the struggle is to equalize opportunity, destroy privilege, and afford the highest possible value to each individual life and to the country as a whole.

You never get perfect justice. Equality of opportunity means every man or woman will have a fair chance to make of himself all that he or she has the inherent capacity to achieve; the opportunity to reach the highest point that their capacities can carry them, unassisted by special privilege of their own, and unhampered by special privilege of others; the opportunity to get for himself and his family substantially what he or she has earned. Equality of opportunity also means the country and the community will get the highest service each citizen is capable of giving. Equality of opportunity means that everyone has a level playing field and fair play under the present rules of the game, and it also means changing the rules to work for more substantial equality of opportunity and more substantial reward for equally good service; it does not mean a lazy person is entitled to the same rewards as a hard worker.

The only way to create equality of opportunity and a level playing field is to remove the influence and control of special interests. Even though special interests are entitled to justice, they are not entitled to vote, they are not entitled to write legislation, they are not entitled to a voice on the bench. Wealth and property should be the servant, not the master of our country. It is essential to control the mighty commercial forces we have created. There can be no effective control of corporations when corporations control political activity. We must have transparency and publicity of corporate affairs to be certain corporations obey the law, and whether their management entitles them to the confidence of the public. We must have supervision of corporate capitalization, especially in the financial sector. If a bank is to be trusted with depositors’ money they must prove they are deserving of that trust, not taking the money and gambling for quick profits. Officers and directors should be held personally responsible when any corporation breaks the law. Corporations may offer shareholders protection from financial liabilities, but those protections are not a license to steal or kill.

Many people probably think equality of opportunity and the concepts laid out in the preceding three paragraphs are radical ideas; maybe it was when President Theodore Roosevelt presented these ideas in 1910 in his speech on a new nationalism; maybe it was radical when Abraham Lincoln signed the Emancipation Proclamation. Today, most reasonable people support the idea of equal opportunity for women, minorities, and everyone – make of it what you can.  Yet the same obstacles that Roosevelt faced are still with us today. The playing field has not been leveled. The moneyed special interests are still corrupting politics. The mighty commercial forces still operate with impunity, and without effective controls and transparency.

We still have inequality. There is inequality among men and women, among young and old, and among black and white. These inequalities still cry for equality of opportunity and must be addressed. There is an even greater inequality right now; rich versus poor, specifically the wealthy usurers versus the middle and working class. Stopping the abuses of the bankers does not limit any individual’s ability to work hard and be rewarded for their accomplishments. The greatest obstacle to progress for individuals and the nation as a whole is the enslaving chains of debt and usury. We’re all in the same boat. The welfare of all of us is fundamentally dependent on the welfare of all of us, not on the profits of a few of us.

The OWS is asking for some form of accountability for those people responsible for the housing bubble and the economic meltdown. When the depression started with growing defaults on subprime loans, the bankers dusted off the idea of moral hazard. They refused to modify abusive and predatory mortgage loans on the theory that if they showed compassion and decency toward one unfortunate family then all their other victims would stop paying their mortgages and beg for relief.  The banks are not willing to refinance these loans at lower levels, but are willing to ask for bailout money from these same taxpayers.

The Corporatists have denied their accountability and demand that the rest of us pay for their mistakes. And still, most American  want to “make good” on their debts, but at some point they have to do the math, and if the numbers don’t work out, then any competent financial advisor would have to tell the family it is in their best interest to default. It’s not personal, it’s business.

And that is the lesson we have learned from the bankers: it’s just business. And this is the real moral hazard the bankers now face. Ironically, it is known as the Golden Rule; do unto others as you would have them do unto you. What could be easier to understand? You know how you would like to be treated – that’s how you should treat others.

There has been no criminal liability associated with the mortgage catastrophe that the banks and associated insurance companies led us into? The civil liability has been nothing more than a slap on the wrist and back to business as usual. There surely has been no serious accountability for the group of financiers who got us into this mess. OWS would like to see just a little bit of accountability for those who drove us into our current economic mess.

The OWS is also asking whether or not this nation has its economic and social priorities straight and whether our moral compass is broken. Should we be spending trillions of dollars on misguided wars that last over a decade to no clear result?

 OWS is asking whether we have not ignored our own best instincts and our treasured national values. Should we be spending resources on things that have no productive social value when we could be building a better society at home? Are we going to abandon our liberties to try to preserve our security? Are we going to crumble from within before we crumble from the action of external threats?

OWS also asks: Are our leaders adhering to our constitution at all? The real running of the country is done in secret and often in violation of fundamental constitutional principles, couched behind the banner of national security, and played out in legislation written by lobbyists, paid for by the corporations. OWS wants debate and more transparency and wants a government that acts for the people.

What I’d like to see is the pro-democracy element of the Tea Party join forces with the pro-democracy progressives and forge an anti-kleptocrat, get-money-out-of-politics movement.

It really isn’t about Republicans and Democrats, about right or left, conservative or progressive – those are the divide and conquer labels of the powers that be- and the powers that be are getting nervous. And that, I think, is a good thing.

The Volker Rule is headed for Peoria. O.K., let me explain – you know how a play doesn’t normally start out on Broadway; it starts off-Broadway, maybe way, way off-Broadway; and if it’s accepted in Peoria, maybe someday it will make it to Broadway. The Volker Rule is out, bbut not in its final form. Regulators are giving the public until January 13 to comment on. The concept of the Volker Rule is to prevent banks from making risky trades by prohibiting short-term trading for their own profit in securities, derivatives and other financial products.

It will also prohibit banks from investing in, or sponsoring, hedge funds or private equity funds.

The idea behind the rule is to prevent banks that enjoy some sort of government safety net, such as deposit insurance on customer accounts or access to Fed money, from using that backstop to make money for themselves in their proprietary trading.

The American Bankers Association says the Rule is overly complex and it would make it harder for banks to serve their customers and further weaken the broader economy.

The consumer coalition called Americans for Financial Reform says the proposal issued today has already been watered down so much that it will not live up to its potential.

Three years ago Lehman Brothers collapsed. Three years ago the barn burned to the ground, and today we’re still arguing about the need to shut the barn gate.