Beurskrach 1929, mysterie ontrafeld?

De wereld, en met name de Verenigde Staten, beleefde in de jaren twintig van de vorige eeuw een hoogconjunctuur. Als gevolg hiervan stegen de koersen van aandelen en andere effecten tot enorme hoogten, aandelen werden op de beurs veel meer waard dan redelijk was. De onderliggende economie was echter ongemerkt in kracht verminderd, zonder dat dit op de beurs tot uiting kwam. Beleggers verkeerden in euforie, en de prijzen van de aandelen werden steeds maar verder opgejaagd, dit tegen alle economische logica in. (1)

- Ingezonden bericht –

De oorzaak dat de Dow Jones naar ongekende hoogte steeg was mijns inziens de introductie op 1 oktober 1928 van een nieuwe berekening van de Dow; de introductie van de Dow-divisor, het uitbreiden van de dow van 20 naar 30 aandelen op 1 oktober 1928 en het splitsen van aandelen in de periode oktober 1928 – november 1929, de laatste fase van de versnellingsfase van de 2e industriele revolutie. Deze drie factoren zijn er de oorzaak van dat de Dow in de periode oktober 1928 tot september 1929 exponentieel is blijven stijgen (van 238 naar 381 punten), terwijl de onderliggende economie sterk in kracht was verminderd.

Transities

Iedere productiefase, of iedere maatschappij of ander menselijk verschijnsel, doorloopt een zogenaamd transformatieproces. Transities zijn maatschappelijke transformatieprocessen, die tenminste één generatie beslaan. In dit artikel wil ik aan de hand van zo’n transitie aangeven, waar we met onze huidige maatschappij staan en wat voor gevolgen dat kan hebben voor de beursindexen.

Transities hebben de volgende eigenschappen (2):

• het betreft een structurele verandering van de (wereld)-maatschappij, of een complex deelsysteem daarvan;
• er is sprake van op elkaar inwerkende en elkaar versterkende technologische, economische, ecologische, sociaal-culturele en institutionele ontwikkelingen op verschillende schaalniveaus;
• het is de resultante van langzame veranderingen (ontwikkelingen in voorraden) en snelle dynamiek (stromen).

Een transitie ligt niet bij voorbaat vast, omdat er gedurende een veranderingsproces altijd sprake is van aanpassen aan, leren van, en inspelen op nieuwe situaties. Een transitie is dus geen wetmatigheid.

Vier transitiefasen

(3)

Figuur 1: fasen van een transitie

In het algemeen beschrijven transities de S-curve en zijn vier transitiefasen te onderscheiden (zie ook figuur 1):

1. een voorontwikkelingsfase van dynamisch evenwicht waarin de status-quo niet zichtbaar verandert;
2. een ‘take-off’-fase waarin het veranderingsproces op gang komt, doordat de toestand van het systeem begint te verschuiven;
3. een versnellingsfase waarin zichtbaar structurele veranderingen plaatsvinden door een cumulatie van op elkaar inspelende sociaal-culturele, economische, ecologische en institutionele veranderingen; in de versnellingsfase is sprake van collectieve leerprocessen, diffusie en processen van inbedding;
4. een stabilisatiefase waarin de snelheid van maatschappelijke verandering afneemt en al lerend een nieuw dynamisch evenwicht wordt bereikt.

Ook een productlevenscyclus en een bedrijfslevenscyclus beschrijven een S-curve. In dit geval is er nog een vijfde fase: de aftakelingsfase, waarin kosten stijgen door overcapaciteit en waarin een producent zich uiteindelijk terugtrekt uit de markt.

Als we de geschiedenis induiken, hebben in de laatste twee eeuwen drie ingrijpende transities, ook wel industriële revoluties genoemd, plaatsgevonden (4):

1. De 1e industriële revolutie (1780 tot circa 1850); de stoommachine
2. De 2e industriële revolutie (1870 tot circa1930); electriciteit, olie en auto
3. De 3e industriële revolutie (1950 tot ….); computer en microprocessor

De Dow Jones Industrial Average (DJIA) index is de oudste aandelenindex van de Verenigde Staten. Een select clubje journalisten van The Wall Street Journal beslist welke bedrijven deel uitmaken van invloedrijkste beursindex ter wereld. In tegenstelling tot de meeste andere indices is de Dow een prijsgewogen index. Het bepalen van de beursindexwaarden zoals de Dow en de weergave van deze index in historische grafieken zijn een perfecte manier om aan te geven in welke fase een industriële revolutie zich bevindt.

Laatste revoluties en de Dow Jones

Dow Jones-index (grafiek) was (is) een fata morgana

In veel grafieken is de y-as een vaste eenheid, zoals kilo, meter, liter of euro. Bij de index-grafiek lijkt dit ook zo, want op de y-as wordt een eenheid in punten gebruikt. Niets is echter minder waar! Een index-punt is namelijk geen vaste eenheid in de tijd en je mag er dan ook historisch gezien geen enkele betekenis aan hechten.

Een index wordt berekend aan de hand van een mandje aandelen. Bij elke index gebeurt dat volgens een bepaalde formule en de uitkomst van de formule levert een aantal punten op. Een grote fout die veel mensen maken is, dat er waarde gehecht wordt aan deze grafieken. Deze grafieken zijn echter erg bedriegelijk.

De Dow wordt voor het eerst gepubliceerd in 1896. De index wordt berekend door de som van de aandelen te delen door twaalf:

Dow-index_1896 = (x1 + x2+ ……….+x12) / 12

Een index wordt berekend aan de hand van een mandje aandelen. Bij elke index gebeurt dat volgens een bepaalde formule en als uitkomst krijg je dan een aantal punten. Dat mandje van aandelen wordt bij elke index echter regelmatig veranderd. Voor de nieuwe periode wordt dus de waarde van een ander mandje aandelen gemeten. Het is natuurlijk vreemd dat je de verschillende mandjes als zelfde eenheid projecteert. Na een periode van vijfentwintig jaar werd de waarde van een mandje met twaalf appels vergeleken met de waarde van een mandje dertig peren. Er zaten in 1929 nog maar twee van de twaalf oorspronkelijke bedrijven in de Dow.

Het meest vreemde is natuurlijk de steeds wijzigende samenstelling van het mandje. Over het algemeen is het zo dat bij het wijzigen van het mandje, bedrijven die in een stabilisatiefase of de aftakelingsfase van hun cyclus (“oud bloed”) zitten, uit het mandje gehaald worden. Bedrijven die in de ‘take-off’-fase of versnellingsfase van hun cyclus (“nieuw bloed”) zitten worden toegevoegd. De kans dat de index na de wijziging van het mandje en de formule stijgt, is dan natuurlijk vele malen groter dan dat de index gaat dalen. Daar hoef je geen kansberekening op los te laten, met name als deze methode wordt toegepast in de versnellingsfase van een transitie. In 1916 wordt de Dow uitgebreid naar twintig bedrijven; er verdwijnen vier bedrijven en er komen twaalf nieuwe bedrijven bij.

Dow-index_1916 = (x1 + x2+ ……….+x20) / 20

Door deze berekeningswijze wordt een soort piramidespel gecreëerd. Dit gaat goed zolang er bedrijven die in de ‘take-off’-fase of versnellingsfase van hun cyclus zitten, worden toegevoegd. Aan het eind van een transitie zullen dit er echter steeds minder worden.

Van een aantal bedrijven zijn in de loop der tijd de aandelen gesplitst en voor die aandelen wordt een wegingsfactor in de berekening meegenomen. De formule ziet er als volgt uit (American Can wordt met 6 vermenigvuldigd, General Electric met 4).

Dow-index_1927 = (6.x1 + 4.x2+ ……….+x20) / 20

Echt bizar wordt het bij de wijzigingen die op 1 oktober 1928 op de Dow Jones worden doorgevoerd.
Op 1 oktober 1928 wordt de Dow Jones verder uitgebreid naar dertig aandelen. Omdat men nog alles met de hand moet uitrekenen wordt de berekening van de index eenvoudiger. Men introduceert de Dow Divisor. De index wordt berekend door de som van de aandelen te delen door de Dow Divisor.
Omdat de index op 1 oktober 1928 niet mag veranderen, krijgt de Dow Divisor de waarde 16.67. De index-grafiek van de twee tijdsperioden moet per slot van rekening wel op elkaar aansluiten.

Dow-index_okt_1928 = (x1 + x2+ ……….+x30) / 16.67

De Dow staat op 1 oktober 1928 op 239, dus de som van de aandelen is 3984 dollar.

Vanaf dat moment levert een waardestijging (of daling) van het mandje bijna tweemaal zoveel (of minder) indexpunten op. Bij de oude formule zou de som worden gedeeld door dertig.

Bij elke wijziging in het mandje van de Dow, krijgt de Dow Divisor een andere waarde. Dit gebeurt omdat de index, de uitkomst van de twee formules van beide mandjes, op het moment van verandering dezelfde uitkomst moet opleveren. Ook bij een aandelensplitsing wordt de Dow Divisor om dezelfde reden aangepast.

In het najaar van 1928 en het voorjaar van 1929 vinden er acht aandelensplitsingen waardoor de Dow Divisor daalt naar 10.47.

Dow-index_sept_1929 = (x1 + x2+ ……….+x30) / 10.47

Vanaf dat moment levert een waardestijging (of daling) van het mandje bijna driemaal zoveel (of weinig) indexpunten op dan een jaar eerder. Bij de oude formule zou de som worden gedeeld door dertig. De Dow heeft op zijn hoogtepunt, 3 september 1929, namelijk 381 punten.

De extreme stijging en daarna de extreme daling van de Dow in de periode 1920-1932 is dus vooral veroorzaakt door rekenkundige veranderingen van de Dow, de voortdurende wijziging van het mandje in de versnellingsfase van de tweede industriële revolutie en de aandelensplitsingen die in deze periode hebben plaatsgevonden. Door deze wijzigingen in de Dow zijn beleggers natuurlijk volledig op het verkeerde been gezet. De onderliggende bedrijven die de Dow destijds droegen, kwamen echter ook in de stabilisatie- en aftakelingsfase.

Déjà vu

Tijdens de versnellingsfase van de derde industriële revolutie vanaf 1980, door de komst van de microprocessor, heeft de geschiedenis zich herhaald. Het mandje van de Dow is in deze periode bijna volledig vervangen. Vele aandelensplitsingen hebben plaatsgevonden, waardoor de Dow Divisor weer sterk is veranderd. De Dow Divisor bedraagt momenteel 0,132319125, terwijl in 1985 deze deler nog meer dan 1 was.

Dow-index_1985 = (x1 + x2 + ……..+x30) / 1.116
Dow-index_2009 = (x1 + x2 + …….. + x30) / 0,132319125

Dit verklaart weer de exponentiële stijging van de Dow-grafiek in de jaren negentig. Een koersstijging van 1 dollar van het mandje in 2009 levert dus de facto 8,4 meer indexpunten dan in 1985 (bij daling gebeurt het tegenovergestelde). Vandaar dat we de laatste jaren ook extreme uitslagen zien. Momenteel staat de Dow op 9665; bij het hanteren van de formule uit 1985 zou de index nu op 1150 staan. Ook nu zijn beleggers weer op het verkeerde been gezet.

De echte melt-down van de Dow vond destijds plaats na de beurscrach van oktober 1929. In de periode 1930-1932 daalde de Dow verder van 230 naar uiteindelijk 41 punten. Cruciale vraag blijft natuurlijk, of de huidige onderliggende economie sterk genoeg is om de Dow op het huidige peil te houden. Zullen de onderliggende bedrijven die de Dow momenteel dragen, dit keer niet in de stabilisatie- en aftakelingsfase terecht komen? Zullen er voldoende nieuwe bedrijven zijn om als nieuwe dragers te fungeren? En wanneer zal dat zijn?

Ik roep de financiële wereld op, de formule waarmee de Dow wordt berekend, eens kritisch onder de loep te nemen. Blijft de huidige berekening in tact, dan zal bij een volgende transitie de belegger opnieuw met een kluitje in het riet worden gestuurd.

- Wim Grommen

Wim Grommen is van origine wiskunde/natuurkundedocent (tien jaar). hij geeft al vijfentwintig jaar trainingen op het gebied van automatisering, momenteel bij Transfer Solutoions in Leerdam. Hij heeft zich de laatste jaren verdiept in maatschappelijke transformatieprocessen en de S-curve.

Het artikel Beurskrach 1929, mysterie ontrafeld?  is januari 2010 verschenen in het maandblad Technische & Kwantitatieve Analyse, een maandelijkse uitgave van Beleggers Belangen.

Bronvermelding:

1 – http://nl.wikipedia.org/wiki/Beurskrach_van_1929
2- Transities & transitiemanagement, casus van een emissiearme energievoorziening, Prof. dr. ir. Jan Rotmans e.a.
3 – Transities & transitiemanagement, casus van een emissiearme energievoorziening, Prof. dr. ir. Jan Rotmans e.a.
4 – Geschiedenis Werkplaatssite van Wolters-Noordhoff

The Dow Jones Index is the Greatest of All Ponzi Schemes

The Dow Jones Industrial Average (DJIA) Index – the oldest stock exchange in the U.S. and most influential in the world – consists of 30 companies and has an extremely interesting and distressing history regarding its beginnings, transformation and structural development which has all the trappings of what is commonly referred to as pyramid or Ponzi scheme.

So writes Wim Grommen in an article originally posted onwww.FinancialArticleSummariesToday.com and www.munKNEE.com entitled Beware: The Dow 30′s Performance is Being Manipulated!

Grommen goes on to say, and I quote:

The Dow Index was first published in 1896 when it consisted of just 12 constituents and was a simple price average index in which the sum total value of the shares of the 12 constituents were simply divided by 12. As such those shares with the highest prices had the greatest influence on the movements of the index as a whole. In 1916 the Dow 12 became the Dow 20 with four companies being removed from the original twelve and twelve new companies being added. In October, 1928 the Dow 20 became the Dow 30 but the calculation of the index was changed to be the sum of the value of the shares of the 30 constituents divided by what is known as the Dow Divisor.

While the inclusion of the Dow Divisor may have seemed totally straightforward it was – and still is – anything but! Why so? Because every time the number of, or specific constituent, companies change in the index any comparison of the new index value with the old index value is impossible to make with any validity whatsoever. It is like comparing the taste of a cocktail of fruits when the number of different fruits and their distinctive flavours – keep changing. Let me explain the aforementioned as it relates to the Dow.

Companies Go Through 5 Transition Phases

On one hand, generally speaking, the companies that are removed from the index are in either the stabilization or degeneration transition phases of which there are five, namely:

1. the pre-development phase in which the present status does not visibly change.

2. the take-off phase in which the process of change starts because of changes to the system

3. the acceleration phase in which visible structural changes – social, cultural, economical, ecological, institutional – influence each other

4. the stabilization phase in which the speed of sociological change slows down and a new dynamic is achieved through learning.

5. the degeneration phase in which costs rise because of over-capacity leading to the producing company finally withdrawing from the market.

The Dow Index is a Pyramid Scheme

On the other hand, companies in the take-off or acceleration phase are added to the index. This greatlyincreases the chances that the index will always continue to advance rather than decline. In fact, the manner in which the Dow index is maintained actually creates a kind of pyramid scheme! All goes well as long as companies are added that are in their take-off or acceleration phase in place of companies in their stabilization or degeneration phase.

The False Appreciation of the Dow Explained

On October 1^st, 1928, when the Dow was enlarged to 30 constituents, the calculation formula for the index was changed to take into account the fact that the shares of companies in the Index split on occasion. It was determined that, to allow the value of the Index to remain constant, the sum total of the share values of the 30 constituent companies would be divided by 16.67 ( called the Dow Divisor) as opposed to the previous 30.

On October 1^st, 1928 the sum value of the shares of the 30 constituents of the Dow 30 was $3,984 which was then divided by 16.67 rather than 30 thereby generating an index value of 239 (3984 divided by 16.67) instead of 132.8 (3984 divided by 30) representing an increase of 80% overnight!! This action had the affect of putting dramatically more importance on the absolute dollar changes of those shares with the greatest price changes. But it didn’t stop there!

On September, 1929 the Dow divisor was adjusted yet again. This time it was reduced even further down to 10.47 as a way of better accounting for the change in the deletion and addition of constituents back in October, 1928 which, in effect, increased the October 1^st, 1928 index value to 380.5 from the original 132.8 for a paper increase of 186.5%!!!

From September, 1929 onwards (at least for a while) this “adjustment” had the affect – and I repeat myself – of putting even that much more importance on the absolute dollar changes of those shares with the greatest changes.

How the Dow Divisor Contributed to the Crash of ‘29

From the above analyses/explanation it is evident that the dramatic “adjustments” to the Dow Divisor (coupled with the addition/deletion of constituent companies according to which transition phase they were in) were major contributors to the dramatic increase in the Dow from 1920 until October 1929 and the following dramatic decrease in the Dow 30 from then until 1932 notwithstanding the economic conditions of the time as well.

Exponential Rise in the Dow 30 is Revealed

The 1980s and ‘90s saw a continuation of the undermining of the true value of the Dow 30. Yes – you guessed correctly –further “adjustments” in the Dow Divisor kept coming and coming! As the set of constituents of the Dow changed over the years (almost all of them) and many shares were split the Dow Divisor kept changing.

By 1985 the Dow Divisor was only 1.116 and today it is only 0.132129493. Indeed, a rise of $1 in share value of the 30 constituents actually results in 8.446 more index points than in 1985 (1.116 divided by 0.132129493).

Had it not been for this dramatic decrease in the Dow Divisor the Nov.3/10 Dow 30 index value of 12,215 (sum total of the current prices of the 30 constituent shares of $1481.85 divided by 0.132129493) would only be 1327.82 ($1481.85 divided by 1.116) in 1985 terms.

Were we still using the original formula the Dow 30 would actually be only 49.395 ($1481.85 divided by 30)!

The crucial questions today are:

1. Is the current underlying economy strong enough to keep the Dow 30 at its present level?

2. Will the 30 constituents of the Dow remain robust or evolve into the stabilization and degeneration phases?

3. Will there be enough new companies to act as new “up-lifters” of the Dow?

4. When will the Dow Divisor change – yet again??

The Dow 30 is the Greatest of All Ponzi Schemes

I call on the financial community to take a critical look at the Dow Divisor. If it is retained investors will continue to be deceived with every new transition from one phase to another and the greatest of all Ponzi schemes will have major financial consequences for every investor.

(A version of this article, entitled Beurskrach 1929, mysterie ontrafeld?, was first published in Dutch in the January 2010 issue of “Technische en Kwantitatieve Analyse” magazine which is a monthly publication of Beleggers Belangen  (Investment Interests) in the Netherlands and on several sites there including: Beurskrach 1929 mysterie ontrafeld? op Historiek.net)

More Money Than God Hedge Funds and the Making of a New Elite

Author:	Sebastian Mallaby, Director of the Maurice R. Greenberg Center for Geoeconomic Studies and Paul A. Volcker Senior Fellow for International Economics

Publisher:	A CFR Book. Penguin Press

Release Date: June 2010

496 pages
ISBN 978-1594202551
$29.95

Overview

Wealthy, powerful, and potentially dangerous, hedge-fund moguls have become the It Boys of twenty-first-century capitalism. Their weekend mansions are fodder for Vanity Fairphotographers; their potential to cause chaos preoccupied authorities even before the recent financial cataclysm. Based on esteemed financial writer Sebastian Mallaby’s unprecedented access to the industry, including three hundred hours of interviews and binders of internal documents, More Money Than God tells the inside story of hedge funds’ origins in the 1960s and 1970s, their explosive battles with central banks in the 1980s and 1990s, and finally their role in the financial crisis of 2007–2009.

“A wonderful story and an education in finance.”
—Fareed Zakaria

Hedge funds reward risk takers, so they tend to attract larger-than-life personalities. Jim Simons of Renaissance Technologies began life as a code-breaker and mathematician, co-authoring a paper on theoretical geometry that led to breakthroughs in string theory. Ken Griffin of Citadel started out trading convertible bonds from his dorm room at Harvard. Julian Robertson staffed his hedge fund with college athletes half his age, then he flew them to various retreats in the Rockies and raced them up the mountains. Paul Tudor Jones posed for a magazine photograph next to a killer shark and happily declared that a 1929-style crash would be “total rock-and-roll” for him. Michael Steinhardt was capable of reducing underlings to sobs. “All I want to do is kill myself,” one said. “Can I watch?” Steinhardt responded.

“The fullest account we have so far of a too-little-understood business that changed the shape of finance and no doubt will continue to do so.”
—Wall Street Journal

Finance professors have long argued that beating the market is impossible, and yet drawing on insights from mathematics, economics, and psychology, hedge funds have cracked the market’s mysteries and gone on to earn fortunes. Their innovation has transformed the world, spawning new markets in exotic financial instruments and rewriting the rules of capitalism.

“A fascinating history.”
—John Y. Campbell, Department of Economics, Harvard University

More than just a history, More Money Than Godis a window on tomorrow’s financial system. Hedge funds have been left for dead after past financial panics: after the stock market rout of the early 1970s, after the bond market bloodbath of 1994, after the collapse of Long-Term Capital Management in 1998, and yet again after the dot-com crash in 2000. Each time, hedge funds have proved to be survivors, and it would be wrong to bet against them now. Banks such as Citigroup, brokers such as Bear Stearns and Lehman Brothers, home lenders such as Fannie Mae and Freddie Mac, insurers such as AIG, and money market funds run by giants such as Fidelity—all have failed or been bailed out. But the hedge fund industry has survived the test of 2007–2009 far better than its rivals. To a surprising and unrecognized degree, the future of finance lies in the history of hedge funds.

Universal statistical properties of poker tournaments

http://www.citebase.org/fulltext?format=application/pdf&identifier=oai:arXiv.org:physics/0703122

The Battle of the Titans: JP Morgan Versus Goldman Sachs Or Why the Market Was Down for 7 Days in a Row

By Ellen Brown

URL of this article: www.globalresearch.ca/index.php?context=va&aid=17280

Global Research, January 29, 2010

Web of Debt - 2010-01-28

We are witnessing an epic battle between two banking giants, JPMorgan Chase (Paul Volcker) and Goldman Sachs (Geithner/Summers/Rubin). Left strewn on the battleground could be your pension fund and 401K. The late Libertarian economist Murray Rothbard wrote that U.S. politics since 1900, when William Jennings Bryan narrowly lost the presidency, has been a struggle between two competing banking giants, the Morgans and the Rockefellers. The parties would sometimes change hands, but the puppeteers pulling the strings were always one of these two big-money players. No popular third party candidate had a real chance at winning, because the bankers had the exclusive power to create the national money supply and therefore held the winning cards. In 2000, the Rockefellers and the Morgans joined forces, when JPMorgan and Chase Manhattan merged to become JPMorgan Chase Co. Today the battling banking titans are JPMorgan Chase and Goldman Sachs, an investment bank that gained notoriety for its speculative practices in the 1920s. In 1928, it launched the Goldman Sachs Trading Corp., a closed-end fund similar to a Ponzi scheme. The fund failed in the stock market crash of 1929, marring the firm's reputation for years afterwards. Former Treasury Secretaries Henry Paulson, Robert Rubin, and Larry Summers all came from Goldman, and current Treasury Secretary Timothy Geithner rose through the ranks of government as a Summers/Rubin protégé. One commentator called the U.S. Treasury Goldman Sachs South.  Goldmans superpower status comes from something more than just access to the money spigots of the banking system. It actually has the ability to manipulate markets. Formerly just an investment bank, in 2008 Goldman magically transformed into a bank holding company. That gave it access to the Federal Reserves lending window; but at the same time it remained an investment bank, aggressively speculating in the markets.  The upshot was that it can now borrow massive amounts of money at virtually 0% interest, and it can use this money not only to speculate for its own account but to bend markets to its will. But Goldman Sachs has been caught in this blatant market manipulation so often that the JPMorgan faction of the banking empire has finally had enough. The voters too have evidently had enough, as demonstrated in the recent upset in Massachusetts that threw the late Senator Ted Kennedys Democratic seat to a Republican. That pivotal loss gave Paul Volcker, chairman of President Obamas newly formed Economic Recovery Advisory Board, an opportunity to step up to the plate with some proposals for serious banking reform. Unlike the string of Treasury Secretaries who came to the government through the revolving door of Goldman Sachs, former Federal Reserve Chairman Volcker came up through Chase Manhattan Bank, where he was vice president before joining the Treasury. On January 27, market commentator Bob Chapman wrote in his weekly investment newsletter The International Forecaster: A split has occurred between the paper forces of Goldman Sachs and JP Morgan Chase. Mr. Volcker represents Morgan interests. Both sides are Illuminists, but the Morgan side is tired of Goldmans greed and arrogance. . . . Not that JP Morgan Chase was blameless, they did their looting and damage to the system as well, but not in the high handed arrogant way the others did. The recall of Volcker is an attempt to reverse the damage as much as possible. That means the influence of Geithner, Summers, Rubin, et al will be put on the back shelf at least for now, as will be the Goldman influence. It will be slowly and subtly phased out. . . . Washington needs a new face on Wall Street, not that of a criminal syndicate. Goldmans crimes, says Chapman, were that it got caught stealing. First in naked shorts, then front-running the market, both of which they are still doing, as the SEC looks the other way, and then selling MBS-CDOs to their best clients and simultaneously shorting them. Volckers proposal would rein in these abuses, either by ending the risky proprietary trading (trading for their own accounts) engaged in by the too-big-to-fail banks, or by forcing them to downsize by selling off those portions of their businesses engaging in it. Until recently, President Obama has declined to support Volckers plan, but on January 21 he finally endorsed it. The immediate reaction of the market was to drop and drop, day after day. At least, that appeared to be the reaction of the market. Financial analyst Max Keiser suggests a more sinister possibility. Goldman, which has the power to manipulate markets with its high-speed program trades, may be engaging in a Mexican standoff. The veiled threat is, Back off on the banking reforms, or stand by and watch us continue to crash your markets. The same manipulations were evident in the bank bailout forced on Congress by Treasury Secretary Hank Paulson in September 2008.  In Keisers January 23 broadcast with co-host Stacy Herbert, he explains how Goldmans manipulations are done. Keiser is a fast talker, so this transcription is not verbatim, but it is close. He says: High frequency trading accounts for 70% of trading on the New York Stock Exchange. Ordinarily, a buyer and a seller show up on the floor, and a specialist determines the price of a trade that would satisfy buyer and seller, and thats the market price. If there are too many sellers and not enough buyers, the specialist lowers the price. High frequency trading as conducted by Goldman means that before the specialist buys and sells and makes that market, Goldman will electronically flood the specialist with thousands and thousands of trades to totally disrupt that process and essentially commandeer that process, for the benefit of siphoning off nickels and dimes for themselves. Not only are they siphoning cash from the New York Stock Exchange but they are also manipulating prices. What I see as a possibility is that next week, if the bankers on Wall Street decide they dont want to be reformed in any way, they simply set the high frequency trading algorithm to sell, creating a huge negative bias for the direction of stocks. And theyll basically crash the market, and it will be a standoff.  The market was down three days in a row, which it hasnt been since last summer. Its a game of chicken, till Obama says, Okay, maybe we need to rethink this. But the President hasnt knuckled under yet. In his State of the Union address on January 27, he did not dwell long on the issue of bank reform, but he held to his position. He said: We can't allow financial institutions, including those that take your deposits, to take risks that threaten the whole economy. The House has already passed financial reform with many of these changes. And the lobbyists are already trying to kill it. Well, we cannot let them win this fight. And if the bill that ends up on my desk does not meet the test of real reform, I will send it back. What this real reform would look like was left to conjecture, but Bob Chapman fills in some blanks and suggests what might be needed for an effective overhaul: The attempt will be to bring the financial system back to brass tacks. . . . That would include little or no MBS and CDOs, the regulation of derivatives and hedge funds and the end of massive market manipulation, both by Treasury, Fed and Wall Street players. Congress has to end the Presidents Working Group on Financial Markets, or at least limit its use to real emergencies. . . . The Glass-Steagall Act should be reintroduced into the system and lobbying and campaign contributions should end. . . . No more politics in lending and banks should be limited to a lending ratio of 10 to 1. . . . It is bad enough they have the leverage that they have. State banks such as North Dakotas are a better idea. On January 28, the predictable reaction of the market was to fall for the seventh straight day. The battle of the Titans was on. Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and the money trust. She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her eleven books includeForbidden Medicine, Natures Pharmacy (co-authored with Dr. Lynne Walker), and The Key to Ultimate Health (co-authored with Dr. Richard Hansen). Her websites are www.webofdebt.com,www.ellenbrown.com, and www.public-banking.com.

The Lost Decade: New Census Data Outlines Bush Era Setbacks in Poverty, Income, and Health Coverage

This first decade in the new millennium has been a trying one for Americans, and the nation is still coming to terms with the scale of problems President Obama inherited. After a historic economic boom under President Clinton, the country experienced a painful bust.

A new DLC report looks at recent Census data to assess the damage. With the final year of George W. Bush's presidency on the books, the numbers are clear: much like Japan during the 1990s, the last 10 years have been a "Lost Decade" for the United States. The analysis reveals that, after a decade in which incomes rose, poverty fell, and the rate of Americans lacking health coverage shrank, the country has suffered setbacks across all three social indicators.

The new report, "The Lost Decade: New Census Data Outlines Bush Era Setbacks in Poverty, Income, and Health Coverage," authored by DLC research associate Conor McKay, makes three principal findings:

1. Income: Inflation adjusted incomes fell further under President Bush than under any president since reporting began. Under President Clinton, per capita incomes rose 25 percent.
2. Poverty: The poverty rate jumped 17 percent under President Bush, with nearly 8 million more Americans in poverty today than were in 2000. In 2008, the country saw the largest single-year increase in the poverty rate in the last 25 years. The poverty rate fell 24 percent under President Clinton.
3. Health Coverage: The number of uninsured Americans increased over 20 percent to an all-time high of 46.3 million, including a dramatic 157 percent increase in the population of uninsured Americans over the age of 65. The uninsured rate dropped under President Clinton.

The Obama administration is working hard to reverse these trends. The economic recovery package and other measures have pulled the economy back from the brink and helped to stem job losses -- and as the recovery develops, incomes will rise again and poverty will fall. As McKay's report reveals, after the past decade, America has a lot of catching up to do.

As always, I look forward to your comments and feedback.

Sincerely,

Bruce Reed
CEO

The United States of Corporate America: From Democracy to Plutocracy

The United States of Corporate America: From Democracy to Plutocracy by Prof. Rodrigue Tremblay
Global Research, January 22, 2010
The New American Empire
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"The price of apathy towards public affairs is to be ruled by evil men."Plato, ancient Greek philosopher ...“The 20th century has been characterized by three developments of great political importance: The growth of democracy, the growth of corporate power, and the growth of corporate propaganda as a means of protecting corporate power against democracy.”Alex Carey, Australian social scientist “The most effective way to restrict democracy is to transfer decision-making from the public arena to unaccountable institutions: kings and princes, priestly castes, military juntas, party dictatorships, or modern corporations.” Noam Chomsky, M.I.T. Emeritus Professor of Linguistics On Tuesday, January 19 (2010), the Obama administration got a kick in the pants from the Massachusetts voters when they filled former Senator Ted Kennedy's seat by electing a conservative Republican candidate. The essence of their message was: stop dithering and start governing; stop trying to satisfy the bankers and please the editors of Rupert Murdoch's Wall Street Journal, and start caring for the ordinary people. Two days later, President Barack Obama seemed to have understood the people's message when he announced a “Volcker rule” that will forbid large banks from owning hedge funds that make money by placing large bets against their own clients, using information that these same clients gave them. It was time. Such a policy should have been announced months ago, if not years ago. On the same day, however, a nonelected body, the U.S. Supreme Court, threw a different challenge to the Obama administration. Indeed, on Thursday January 21 (2010), a Republican-appointed majority on the U.S. Supreme Court [http://www.nytimes.com/aponline/2010/01/21/us/AP-US-Supreme-Court-Campaign-Finance.html?src=tptw] took it upon itself to profoundly change the U.S. Constitution and American democracy. Indeed, in what can be labeled a most reactionary decision, the Roberts U.S. Supreme Court, [http://www.nytimes.com/aponline/2010/01/21/us/AP-US-Supreme-Court-Campaign-Finance.html?src=tptw] ruled that legal entities, such as corporations and labor unions, have the same purely personal rights to free speech as living individuals. Indeed, the First Amendment of the U.S. Constitution [http://en.wikipedia.org/wiki/First_Amendment_to_the_United_States_Constitution] says “Congress shall make no law ... abridging the freedom of speech. The only problem with such a wide interpretation of the U.S. Bills of Rights [http://en.wikipedia.org/wiki/United_States_Bill_of_Rights] (N.B.: The first ten amendments to the United States Constitution are known as the Bill of Rights) is that this runs contrary its letter and its spirit, since it clearly states later on that "the enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people, and reserves all powers not granted to the federal government to the citizenry or States.” The words “people” and “citizenry” clearly refer here to living human beings, not to legal or artificial entities such as business corporations, labor unions, financial organizations or political lobbies. Such entities, for example, cannot vote in an election. Indeed, laws governing voting rights in the United States clearly establish that only “Adult citizens of the United States who are residents of one of the 50 states have the right to participate fully in the political system of the United States”. No mention is made of corporations or other legal entities. However, with its January 19 (2010) decision, the majority on the Roberts U.S. Supreme Court is saying in effect that even if artificial entities cannot vote in an election, they can spend as much money as they like to influence the outcome of an election. Money is speech for them, and the more a legal entity has of it, the more it has a right to become powerful politically and control the political agenda. In fact, what Chief Justice Roberts and his conservative Supreme Court majority have done is to overcome a century-old democratic tradition in the United States in granting a constitutional right to business corporations and to banks, (because they are really the ones with a lot of money), to use their enormous resources to not only participate in debates about public issues, but also, and above all, to de facto dictate the election of candidates of their choice to public office. That's plutocracy, not democracy! Plutocracy [http://en.wikipedia.org/wiki/Plutocracy] is defined as a political system characterized by “the rule by the wealthy, or power provided by wealth.” Democracy, on the other hand, is defined as a political system where political power belongs to the people. This means “a political government either carried out directly by the people (direct democracy) or by means of elected representatives of the people (representative democracy). The terms "the power to the people" are derived from the words "people" and "power" in Greek. This fundamental idea of democracy was well summarized by President Abraham Lincoln, in his 1863 Gettysburg Address, when he said that it is “a government of the people, by the people and for the people.” This is a definition that is based on the basic democratic principle of equality among human beings. But now, the Roberts Court's decision must have made President Lincoln turn in his grave, because that decision, in effect, transfers political power from the living “people” to artificial corporate entities, with tons of money to spend. If Congress does not act quickly to reverse this decision, legal entities will be able to spend freely in the media to support or oppose political candidates for president and Congress, and this, as far as the last moment of a political campaign. This is quite something! By a stroke of the pen, the Roberts Court has thus abolished the laws governing American electoral financing and removed limits to how much special money interests can spend to have the elected officials they want. The government they want will largely be “a government of the corporations, by the corporations, for the corporations.” Truly amazing! To reflect the new political philosophy of the five-member majority of the Roberts Court, the Preambule of the U.S. Constitution [http://www.answers.com/topic/preamble-to-the-constitution] that says “We the People of the United States, in order to form a more perfect Union...” should, maybe, more appropriately be changed for “We, the business corporations of America...” It is that much more ironic that the word “corporation” appears nowhere in the U.S. Constitution or in the Bill of Rights. It is scarcely conceivable that the drafters of the Constitution had anything resembling corporate entities in mind when they drafted the Bill of Rights. But the Roberts Court majority does not seem to agree with Washington, Jefferson, Franklin, Madison, Mason...etc. Because of their decision, the five conservative members of the U. S. Supreme Court of today have become the new Fathers of the U. S. Constitution. For nearly a century, it has been assumed that the U.S. Bill of Rights protected persons, not corporations. Even if sometimes the courts have extended the rights of the14th Amendment banning the deprivation of property without due process or equal protection of the law to the property of corporations, it was never thought that the purely personal rights of the first Amendment of the Bill of Rights applied to corporate entities as well as to human beings. This is understandable. Business corporations are created through legislation that gives them potentially perpetual life and limited liability to enhance their efficiency as economic entities. While such characteristics can be beneficial in the economic sphere, they represent special dangers in the political sphere. That is the rationale for not extending constitutional rights to purely legal entities. But now, the five-member majority of the Roberts Court have said that such legalized artificial entities have the same constitutionally protected rights to engage in political activities as living individuals. This is clearly revolutionary or, more precisely, counter-revolutionary. Rodrigue Tremblay [http://www.thenewamericanempire.com/author.htm] is professor emeritus of economics at the University of Montreal and can be reached at rodrigue.tremblay@yahoo.com.  He is the author of the forthcoming book "The Code for Global Ethics" at: http://www.TheCodeForGlobalEthics.com/ You may reserve a copy of the book on Amazon http://www.amazon.com/Code-Global-Ethics-Humanist-Principles/dp/1616141727/ref=sr_1_4?ie=UTF8&s=books&qid=1257383472&sr=1-4
Rodrigue Tremblay is a frequent contributor to Global Research.  Global Research