Wednesday, July 03, 2013 - Independence Day

Independence Day

by Sinclair Noe

DOW + 56 = 14,988
SPX + 1 = 1615
NAS + 10 = 3443

10 YR YLD + .03 = 2.50%
OIL + 1.64 = 101.24
GOLD + 10.10 = 1253.50
SILV + .34 = 19.82

Today is Independence Day. I know; the Fourth of July is tomorrow, but it is Independence Day in Egypt, or Coup Day, or something. They had huge crowds in Tahrir Square and they celebrated with fireworks, so let's called it Independence Day. We're not really sure what it is, but we know a few things. There has been a revolution. The Egyptian army has overthrown President Mohamed Morsi, announcing a roadmap for the country’s political future that will be implemented by a national reconciliation committee.

The head of Egypt's armed forces issued a declaration today suspending the constitution and appointing the head of the constitutional court as interim head of state. Morsi's presidential Facebook page quoted the disposed president as saying he rejected the army statement as a military coup. Morsi was the head of the Muslim Brotherhood and he had served for one year as president, after being democratically elected, following the revolution that overthrew the sort-of democratically elected dictator Hosni Mubarak. Democracy can be messy. And these are messy, noisy, uncertain and unpredictable days for Egypt.

The country is in unchartered territory. The economy is under severe pressure. Most institutions are weak. A credible leader is yet to emerge with widespread support. And, to make things worse, there is no play book. The mood on the street may look joyful but the situation could easily turn violent.

Nobody really knows what will happen next, but the Egyptian people took to the streets to say that what had been happening was not acceptable. They are no longer fearful or ambivalent about their government. With a little luck, maybe something good will come from all this.

Yesterday we talked about the doubling of interest rates on student debt. It shot up to 6.8% from 3.4% for new loans. So, the next time you go to a college graduation, look past the caps and gowns and make sure you notice the ball and chain most graduates are wearing as they march onstage to receive their diplomas. That's student loan debt, which at over $1 trillion tops credit card debt in the U.S. today. The average burden is $28,000, but add in their credit cards and they're graduating with an average of $35,000 in debt. It's no wonder that people who've paid off their student loan debt are 36 percent more likely to own homes than those who haven't.

A growing number of voices, including the Fed, are pointing to the way this debt burden is a drag not just on the borrowers but the wider economy. One survey found that student debt reduces average aggregate car purchasing by $6.4 billion a year. Young people are leaving school with the kind of debt that was once only incurred by the purchase of a first home; not surprisingly, it's depressing home buying too.

According to the Federal Reserve Bank, two-thirds of college graduates leave with some debt, and 37 million Americans are repaying a student loan right now. And the grads who graduate with no debt are the really lucky ones. The grads who graduate with debt are semi-lucky – they get a degree and a chance at emplyment. Lots of students don't graduate but still have debt. And then, about one-third of high school graduates aren't luck enough to go to college.

We shouldn't even call them student "loans," because you can't refinance them, and you can't get out from under them by declaring bankruptcy. It's more like indenture. Thanks to the Bankruptcy Reform act of 2005, there's no statute of limitation on collecting student loans, and lenders can garnish wages, tax refunds and even Social Security checks. Back in 2007, now-Sen. Elizabeth Warren asked: "Why should students who are trying to finance an education be treated more harshly than someone … who racked up tens of thousands of dollars gambling?" Nothing's changed, although Warren is part of a limited number of people in Congress who are trying. Now, Warren has proposed that student loans should get the same interest rates as banksters. You know, the Fed should offer money for education at the same ¼% that they give money to the big banks.

Following World War II, GI's returned home and went to school, and it was financed through the GI Bill. That one thing created more wealth than any other single thing in our nation's history. In theory and to a significant extent in practice, any GI could, if they worked hard enough, get a bachelor's degree from one of the best universities in the country (and, therefore, in the world), almost free of charge. The pronounced social and economic mobility of the postwar period would have been unthinkable without institutions of mass higher education, provided at public expense. The result was a highly educated population, relative to the pre-war years, that went on to productive work. And that in turn led to the greatest expansion of the middle class that we've ever seen.

Once upon a time, states competed to expand their public university systems - and many were free, or close to it. The stellar University of California system was tuition free (though there were fees) until the late 60's; so was the City University of New York system for a long time, and Arizona universities, and plenty of other states. Now, California is one of at least 10 states that now spends more on prison than higher education. I haven't seen any studies that make a direct link, but I'm pretty sure the two are connected.

A federal judge has approved HSBC's $1.9 billion settlement for money laundering. While noting "heavy public criticism" of the settlement, which enabled HSBC to escape criminal prosecution, US District Judge John Gleeson, New York, called the decision to approve the accord "easy, for it accomplishes a great deal."

The settlement was announced last December, but it required approval. The settlement includes $1.25 billion in forfeitures and $665 million in civil fines. The settlement is part of a deferred prosecution agreement, or DPA, that runs for 5 years. That means that the bank has to avoid doing the bad things they did, or they could be indicted. I've never heard of a major bank operating under a DPA that actually has been indicted for violating the DPA, but that's the theory.

And what are the bad things HSBC is accused of doing? Well for years they laundered money on behalf of Colombian and Mexican drug cartels. They laundered money for customers in Burma, Cuba, Sudan, Libya, and Iran, which were all subject to US sanctions. They dealt with drug dealers, murderers, terrorists, and other unsavory types and they made sure the bad guys had money to do bad things. But don't worry, it's not criminal; it's just a civil case.

Judge Gleeson said he had received requests from the public to reject the agreement because it did not hold HSBC criminally liable. He also read numerous editorials and columns suggesting, as one put it, that HSBC was "too big to indict." Gleeson, nonetheless, said "significant deference" was owed to the Obama administration in deciding not to press an indictment. Gleeson said "much of what might have been accomplished by a criminal conviction has been agreed to in the DPA," whose administration he will supervise.

This is not true. The settlement does not accomplish much. What the judge has done is to shred the justice system once again; it seems to be common practice these days. Judgments such as this just create a two-tiered justice system. And we accept it out of ambivalence and fear. One set of laws for the rich and powerful, another set of laws for everyone else. Maybe we should require that judge to recite the Pledge of Allegiance every morning to start the court day. Maybe he could read that segment about “justice for all”; not just punishment for the poor folk; not just an agreement to tie executive bonuses to meeting compliance standards; not just coddling the bag men for murderers and drug dealers and terrorists; not just a slap on the wrist if you hold a wad of money in your hand. Justice for all. What a joke.

Which brings us to our next segment: “Where in the world is Edward Snowden?” We now know he was not on Evo Morales' presidential jet. The president of Bolivia had flown to Russia to meet with Russian President Vlad Putin. President Morales then tried to fly back to Bolivia. Someone, somewhere suspected that he was trying to sneak out with Snowden on board. Portugal, Spain, France, and Italy refused to allow the presidential jet to fly over their airspace. The plane circled around for a few hours and eventually landed in Austria. The plane was searched and they did not find Snowden.

Now, normally a presidential jet, like Air Force One, is considered to be something like an embassy; there is an issue of national sovereignty. So, there is more than a little outrage over a pretty serious diplomatic transgression. Bolivia's ambassador to the United Nations said "the orders came from the United States." From a diplomacy standpoint, one does not normally interfere with diplomats and high-ranking public officials in transit. It is extraordinary to prohibit passage through one's state air space en route to another state. Almost all the nations in South America have condemned the intervention.

So, we spend billions of dollars on high tech intelligence and spy stuff and we still can't figure out whether Snowden is in the Moscow airport or on the Bolivian presidential jet or who-knows-where.

What we have learned about Snowden is that he doesn't have $1.9 billion to pay a civil fine.