Obscene Golden Parachutes Are Part of America’s Rising Wealth Inequality

By Pam Martens and Russ Martens: November 25, 2015

Golden Parachute PhotoAmerica’s new gilded age has been lined with Golden Parachutes with pathological underpinnings.

On September 11, 2002, the Securities and Exchange Commission brought charges against the three top executives of Tyco International. The complaint began with this: “This is a looting case.”

The SEC charged that Tyco’s CEO, Dennis Kozlowski and Mark Schwartz, its CFO, “took hundreds of millions of dollars in secret, unauthorized and improper low interest or interest-free loans and compensation from Tyco.” The transactions were concealed from shareholders and, according to the SEC, “Kozlowski and Swartz later pocketed tens of millions of dollars by causing Tyco to forgive repayment of many of their improper loans” and “engaged in numerous highly profitable related party transactions with Tyco and awarded themselves lavish perquisites — without disclosing either the transactions or perquisites to Tyco shareholders.”

USA Today reported that the Manhattan apartment that Tyco had been providing to Kozlowski “includes a $6,000 shower curtain, coat hangers valued at $2,900, two sets of sheets for $5,960 and a $445 pincushion.”

The SEC also charged that the General Counsel of Tyco, Mark Belnick, a former partner of the corporate law firm Paul, Weiss, Rifkind, Wharton & Garrison, “defrauded Tyco shareholders of millions of dollars through egregious self-dealing transactions.” According to the SEC, “from 1998 into early 2002, Belnick received approximately $14,000,000 in interest-free loans from Tyco to buy and renovate a $4,000,000 apartment on Central Park West and to buy and renovate a $10,000,000 ski chalet in Park City, Utah.” The SEC noted that “by failing to disclose his self-dealing to investors, Belnick violated the antifraud provisions of the federal securities laws.”

Kozlowski and Schwartz were eventually tried by the Manhattan District Attorney’s office and sent to prison. (Both are out now.) Belnick was acquitted by a jury on fraud and larceny charges brought by the D.A. The jury believed that Belnick had internal company approvals for the loans. The SEC eventually settled its civil case against Belnick with a civil penalty in the amount of $100,000 and the prohibition that he not serve as an officer or director of a public company for a period of five years. He was allowed to retain his law license.

One of the most striking revelations in the Belnick case was the retention agreement Belnick had with Tyco. It guaranteed Belnick a payment of at least $10.6 million should he commit a felony and be fired before October 2003.

Another obscene Golden Parachute that came to light involved a Dow Jones Industrial Average blue chip company: General Electric. On September 23, 2004, the Securities and Exchange Commission settled charges against General Electric for failure to report to shareholders the details of the retirement package it had provided to its retiring Chairman and CEO, Jack Welch. The Golden Parachute guaranteed Welch “for the remainder of his life, continued access to Company facilities and services comparable to those provided to him prior to his retirement.”

What exactly were those facilities and services? When Welch retired on September 30, 2001, according to the SEC, he was going to enjoy the following for the rest of his life: “(a) access to GE aircraft for unlimited personal use and for business travel; (b) exclusive use of a furnished New York City apartment that, according to GE, in 2003, had a rental value of approximately $50,000 a month and a resale value in excess of $11 million; (c) unrestricted access to a chauffeured limousine driven by professionals trained in security measures; (d) a leased Mercedes Benz; (e) office space in both New York City and in Connecticut; (f) the services of professional estate and tax advisors; (g) the services of a personal assistant; (h) communications systems and networks at Welch’s homes, including television, fax, phone and computer systems, with technical support; (i) bodyguard security for various speaking engagements, including a book tour to promote his autobiography Jack: Straight from the Gut; and (j) installation of a security system in one of Welch’s homes and continued maintenance of security systems GE previously installed in three of Welch’s other homes.”

The SEC settled its Cease and Desist order against GE for failing to adequately report these perks to shareholders without fining GE. Welch gave up most of the perks after being assailed in the media. This obscene Golden Parachute only came to light because Jack Welch was going through a divorce and his wife made the details public, including that GE was picking up his living expenses in the Manhattan apartment “from wine and food to laundry, toiletries and newspapers,” according to the New York Times.

A study by Paul Hodgson and Greg Ruel on behalf of GovernanceMetrics International found that since 2000, there have been 21 corporate CEOs who have received Golden Parachutes in excess of $100 million. One of the most stunning examples was Viacom’s Thomas Freston who received more than $100 million for just nine months as CEO.

Today, Wall Street has added another insidious practice to Golden Parachutes. As we reported in 2013, the sitting U.S. Treasury Secretary, Jack Lew, received a $940,000 parting bonus from a Wall Street bank which was predicated on “full time high level position with the United States Government or a regulatory body,” terms that were spelled out in his employment agreement. Lew accepted the funds even though his employer at the time, Citigroup, was being propped up with the largest taxpayer bailout in U.S. history.

Now, the AFL-CIO has submitted shareholder proposals to six Wall Street banks and investment banks, asking for this practice of Government Service Golden Parachutes to end. The Wall Street firms involved are Bank of America, Goldman Sachs, Citigroup, JPMorgan Chase, Lazard and Morgan Stanley. In addition to Jack Lew’s deal, the AFL-CIO states that Morgan Stanley’s “Chairman and CEO James Gorman was entitled to $9.35 million in vesting of equity awards if he had a government service termination on December 31, 2013.”

And while we’re on the subject of Golden Parachutes, it’s also time to end these obscene payments for office space for departing Presidents of the United States. According to the Congressional Research Service, former President Bill Clinton received a whopping $429,000 for office space from the taxpayer for fiscal year 2015 while George W. Bush received $434,000. That’s on top of the pensions and Secret Service expense also doled out on former Presidents.

A nation with 46.7 million people living in poverty, including one in every five children, simply cannot continue to tolerate these institutionalized wealth transfer systems. When our government begins to mimic the obscenities of Wall Street, we know it’s time for meaningful reform.

Meet the Nobel Laureate Nader Wants Janet Yellen to Talk To

By Pam Martens and Russ Martens: November 24, 2015 

George Akerlof, Nobel Laureate (Spouse of Fed Chair Janet Yellen)

George Akerlof, Nobel Laureate (Spouse of Fed Chair Janet Yellen)

After lamenting in a recent book how Presidents George W. Bush and Obama didn’t answer his letters (Return to Sender: Unanswered Letters to the President, 2001-2015), Ralph Nader has finally been requited by a powerful person in Washington.

Nader had the temerity to write Fed Chair Janet Yellen a letter on October 30, pointing out how the Fed’s zero bound interest rate policy is crimping the spending ability of savers who rely on such things as savings accounts and money market interest for added income to survive. Yesterday, Yellen boldly answered Nader’s letter with a smackdown.

The letter has caused an outbreak of sexism charges against Nader by various writers for his suggestion in the letter that Yellen would be wise to “sit down with your Nobel Prize winning husband, economist George Akerlof, who is known to be consumer-sensitive.” Annie Lowrey at New York Magazine said it suggested Yellen needed things mansplained to her “small lady brain” lest there be “cryfests” and “emotional overeating” at the nation’s central bank.

A number of writers have dismissed Nader’s letter as nonsense. In fact, there is a large segment of seniors who can’t afford to risk their meager life savings in the stock market, who have historically relied on the interest from insured money market accounts, insured certificates of deposit, and U.S. Treasury notes and bills to supplement their pension or Social Security benefits. Those individuals have seen that income cut by half or more since the 2008 crash and the Fed’s slashing of interest rates.

But what about economist George Akerlof? Might he actually have something important to share with Janet Yellen and the rest of us for that matter? In fact, Akerlof has co-authored a recent book with a theory that, taken to its logical conclusion, casts a dangerous light on the very institution his wife heads, the Federal Reserve.

The book, Phishing for Phools: The Economics of Manipulation and Deception, by Akerlof and Robert Shiller, explores “reputation mining” as an underlying cause of the 2008 crash. For example, when iconic, century old Wall Street banks bundled securities and received triple-A ratings from century old, respected ratings agencies like Moody’s and Standard and Poor’s, the investing public believed these were worthy investments even though the underlying assets were subprime mortgages, including mortgages given to NINJAs: No Income, No Job or Assets.

Akerlof and Shiller dig into the weeds of how the financial industry incentivized employees to keep this corrupt system afloat and the structural changes on Wall Street, like investment banks going public and no longer having their own capital at risk, that led to a gambler’s mentality across the industry.

What Akerlof and Shiller did not examine, notably, is how the Federal Reserve, the institution now headed by Akerlof’s spouse, was, and is still, engaging in “the economics of manipulation and deception” and mining its century old reputation.

The Dodd Frank Wall Street Reform and Consumer Protection Act was signed into law on July 21, 2010. It is highly unlikely that Congress would have sent this legislation to the President, giving the Federal Reserve massive new powers in regulating Wall Street banks, had members of Congress known at the time that the Fed had secretly funneled over $13 trillion in cumulative, cut-rate loans to teetering banks – effectively resuscitating them while simultaneously covering up its negligent supervisory role in failing to rein in the excesses that allowed the U.S. financial system to collapse.

It was five months after Dodd Frank was signed into law that the Fed first released details of its myriad lending programs. And, it was not until March of 2011, after the U.S. Supreme Court refused to hear a bank coalition’s challenge to a lower court ruling mandating that the Fed turn over its discount window loan data, as demanded in a multi-year legal battle by Bloomberg News, that the public finally learned of the extent of the epic taxpayer bailout.

After the greatest looting spree in U.S. history by Wall Street banks, the public had been further conned in an egregious form of “reputation mining,” this time aided and abetted by secrecy from the Fed about its massive infusions of cash. As Bloomberg News wrote after analyzing the Fed data:

“Bankers didn’t disclose the extent of their borrowing. On Nov. 26, 2008, then-Bank of America Corp. Chief Executive Officer Kenneth D. Lewis wrote to shareholders that he headed ‘one of the strongest and most stable major banks in the world.’ He didn’t say that his Charlotte, North Carolina-based firm owed the central bank $86 billion that day.

“JPMorgan Chase & Co. CEO Jamie Dimon told shareholders in a March 26, 2010, letter that his bank used the Fed’s Term Auction Facility ‘at the request of the Federal Reserve to help motivate others to use the system.’ He didn’t say that the New York-based bank’s total TAF borrowings were almost twice its cash holdings or that its peak borrowing of $48 billion on Feb. 26, 2009, came more than a year after the program’s creation.”

The Fed and Janet Yellen are now overseeing a system where the bad boys of 2008 are the more dangerous bad boys of 2015, with just six banks out of more than 6,000 controlling over 90 percent of hundreds of trillions of dollars in derivatives and more than 40 percent of all deposits.

Nader is right to be asking questions. Unfortunately, Akerlof, while spot on with the concept of reputation mining, doesn’t take it far enough into the inner sanctum of the Fed. (Watch Akerlof mansplain the crash in the video below.)

John Reed: How to Be Dead Wrong as a CEO and Still Get Super Rich

By Pam Martens and Russ Martens: November 23, 2015

John Reed, former Co-Chairman and Co-CEO of Citigroup, Tells a Senate Banking Panel on February 4, 2010 That He Created "a Monster" With the Citigroup Merger

John Reed, former Co-Chairman and Co-CEO of Citigroup, Tells a Senate Banking Panel on February 4, 2010 That He Created “a Monster” With the Citigroup Merger

April 18, 2000 was the day John Reed retired from Citigroup, pushed out in a board room coup, leaving Sandy Weill the sole Chairman and CEO. In 1998, the two had, with great fanfare, merged the FDIC-insured Citibank with Salomon Smith Barney, an investment bank and brokerage firm, and insurance companies controlled by Travelers Group to create the global behemoth known as Citigroup. The pair had initially served as Co-Chairmen and Co-CEOs. At the time, the deal violated the Glass-Steagall Act, the Depression era law which barred firms primarily engaged with underwriting securities to affiliate with insured banks. The Bill Clinton administration would obligingly repeal the Glass-Steagall Act the year after the Citigroup merger.

At the close of trading on April 18, 2000, the day Reed stepped down, 100 shares of Citigroup were worth $6,212. Today, a decade and a half later, that 100 shares has shrunk to 13.33 shares with a value of $729.82. (Citigroup did a 4 for 3 stock split on August 25, 2000 and a 1 for 10 reverse split on May 9, 2011.) In other words, your value as a shareholder has been decimated by 88 percent.

Your tantalizing ride as a shareholder has also had plenty of thrills and chills you likely didn’t bargain for: like watching your stock trade at 99 cents after the 2008 financial crash when Citigroup became the recipient of the largest taxpayer bailout in U.S. history with $45 billion in equity infusions, over $300 billion in government asset guarantees, and over $2 trillion in cumulative, secret, below-market rate loans from the Federal Reserve from 2007 to 2010 to shore up Citigroup’s insolvent carcass.

Citigroup flopped because Sandy Weill and John Reed sold the dystopian banking model of a financial supermarket that would cross-sell all of its wares to savvy investors who would reap the rewards of one stop shopping. Instead, Citigroup fleeced the least sophisticated investor, built a black hole of off balance sheet debt, pumped and dumped toxic derivatives into the financial infrastructure and became the poster child of Wall Street greed, excess and regulatory failure.

So that’s how shareholders made out. How did Sandy Weill and John Reed make out? It is well known that Weill went on to become a billionaire on the backs of Citigroup shareholders. Much less has been written about Reed’s financial rewards for helping to create a financial Hindenburg.

In Monica Langley’s book, Tearing Down the Walls: How Sandy Weill Fought His Way to the Top of the Financial World. . .and Then Nearly Lost It All, the author reports that Reed owned 4.7 million shares of Citigroup on the date of his retirement in April 2000. Langley also notes: “Reed immediately began selling his Citigroup shares and laid plans with his second wife to buy a house on an island off the coast of France.”

If Reed sold all of his Citigroup shares over the next three months after his retirement at an average price at the time of $62, he would have realized $291 million. According to SEC filings (see here and here) Reed also received a $5 million retirement bonus and a retirement pension of at least $2,019,528 annually.

According to SEC filings, Reed was also to receive the following: lawsuit indemnifications arising from company employment; an office at Citigroup, secretarial support and access to a car and driver for as long as Reed deemed it “useful.” If Reed wanted an office outside of New York City, that would be provided with secretarial support until age 75.

Since the crash of 2008, Reed has repeatedly called for breaking up the mega banks and admitted that the Citigroup financial supermarket was a terrible idea. At a February 4, 2010 Senate Banking hearing, Reed told Senator Bob Corker that by creating a universal banking model at Citigroup, he and Weill had “created a monster.” The exchange went like this:

Senator Bob Corker: you were Chairman of Citigroup when all of this was put together…I wonder if guys like you and others laugh at us when we say that we want to create a regime that absolutely ends forever in the American vocabulary that any company is too big to fail…”

John Reed: “…There’s no question that when we put Travelers and Citi together we created a monster. And most of the difficulties we’ve had have stemmed from the Salomon Brothers side.”

On March 16, 2012, Reed appeared on the Bill Moyers’ program and provided insight into the real motivation behind the creation of Citigroup: 

John Reed: “Sandy Weill. I mean, his whole life was to accumulate money. And he said, ‘John, we could be so rich.’ Being rich never crossed my mind as an objective value. I almost was embarrassed that somebody would say out loud. It might be happening but you wouldn’t want to say it.

“But you know, the biggest bonus I had ever received when I was at Citi was three million dollars. The first year I worked with Sandy it was 15 [$15 million]. I said to the board, ‘I’m the same guy doing the same job, same company. There are two of us. The company’s bigger but there’re two of us. What’s going on?’ ‘Oh, you don’t understand.’ And it was just totally different culture. And see, Wall Street developed that culture.”

Just two weeks ago, Reed was back at his serial public pronouncements in an OpEd at the Financial Times titled: “We Were Wrong About Universal Banking.” Reed said the idea behind Citigroup got two basic concepts wrong. Reed writes:

“One was the belief that combining all types of finance into one institution would drive costs down — and the larger the institution the more efficient it would be. We now know that there are very few cost efficiencies that come from the merger of functions — indeed, there may be none at all. It is possible that combining so much in a single bank makes services more expensive than if they were instead offered by smaller, specialised players.

“The second thing we were wrong about has to do with culture — and this turns out to be very serious. Mixing incompatible cultures is a problem all by itself. It makes the entire finance industry more fragile. This is what I mean by an unstable cultural balancing act at the core of universal banking and, the restructurings and management changes we are now seeing in European financial institutions.”

But Weill was right about one thing: both he and Reed became “so rich.”

There is another very troubling aspect about the narrative surrounding Reed’s serial media confessionals. Reed fails to adequately portray just how far back he was pushing Congress to repeal the Glass-Steagall Act. In fact, almost a decade prior to Reed teaming up with Sandy Weill, he was bullying Congress to house Wall Street firms under the same roof with insured, deposit-taking banks.

In prepared remarks before the Senate Banking Committee on July 13, 1989 – nine years before the Citigroup merger – John Reed ridiculed Congress for not allowing the kinds of mergers happening in Europe:

“Organizations and strategic alliances such as these, which have at their core a commercial bank, a fully integrated investment bank/securities operation, and an insurance company, can be expected to dominate global capital markets as the 21st century gets underway. In sum, the global competitive environment is changing rapidly. But while much of the developed world is busy laying the foundation for a financial system for the next century, the U.S. financial system is anchored firmly in the past. It is frankly appalling that European nations will have removed virtually all geographic and product-line barriers affecting financial services by 1992, while our system remains balkanized.”

Even more striking, Reed told the same Senate panel in 1989:

“As for the activities and affiliations of depository institutions, the Bank Holding company Act and the Glass-Steagall Act can only be characterized as protectionist if not in intent, at least in their consequences. Financial institutions perform a limited number of common functions — they process transactions, serve as intermediaries, manage information, give advice and trade assets. That is why the common sense benefits from combining services are potentially so large. Yet current laws compartmentalize financial services in ways that are increasingly anachronistic. They are a source of risk and inefficiency.”

While Reed’s two points in the Financial Times about a culture clash and lack of economies of scale are real, they are hardly the core reason to break up the biggest Wall Street banks. The reason the Glass-Steagall Act was enacted in 1933 was to stop Wall Street casinos from using depositors’ life savings to speculate in stocks and risky trading strategies. The Glass-Steagall Act not only separated Wall Street firms from deposit-taking institutions but it created insurance on deposits at the banks, what would become the Federal Deposit Insurance Corporation or FDIC.

Today, the biggest Wall Street banks are once again using those taxpayer backstopped deposits to place high risk gambles in stock trading and derivatives. It’s heads we win, tails you lose. If the gambles work out, bank managers reward themselves with millions in bonuses. If the bank fails from the gambles, the Federal Reserve has emergency lending authority and can secretly stuff more trillions in cut-rate loans into the failing bank. Seven years after the greatest financial crash since the Great Depression, nothing has materially changed in reining in the high risks being taken with insured deposits.

JPMorgan Chase’s infamous London Whale fiasco in 2012, where London traders were placing massive derivative bets, resulted in at least $6.2 billion in losses. JPMorgan Chase was not trading with its own capital, it was making these high risk bets with deposits in its FDIC insured bank.

Today, out of more than 6,000 FDIC insured banks, six mega banks on Wall Street control over 90 percent of all derivatives and more than 40 percent of all bank deposits in the United States.

The longer this preposterous and dangerous banking model remains in force, the more inevitable the next epic financial crash becomes.

An Uncivil War Is Raging on Wall Street Among the Biggest Players

By Pam Martens and Russ Martens: November 19, 2015

Until March 30, 2014, most Americans and even long-term veterans on Wall Street had no idea how the electrical plumbing responsible for transacting buy and sell orders at stock exchanges and other trading platforms actually worked. That all changed on March 30 when author Michael Lewis went on 60 Minutes and told its 12 million viewers that “The United States stock market, the most iconic market in global capitalism is rigged.”

Lewis was promoting his new book, Flash Boys, which detailed in language the public could easily understand, (devoid of the intentionally cryptic acronyms used across Wall Street) how the stock exchanges, mega Wall Street banks and high frequency traders were conspiring through technology to front run orders from unknowing investors.

In the 60 Minutes interview with Steve Kroft, Lewis drilled down to how the legalized theft had escaped the notice of so many market watchers: “If it’s so complicated you can’t understand it, then you can’t question it,” said Lewis.

At first, the Securities and Exchange Commission denied that the markets were “rigged” and simply tried to ride out the public uproar. Then it decided to create an Equity Market Structure Advisory Committee, effectively bringing together in one room the Wall Street people involved in the mad-scientist technology and market rigging devices to hash it out in a public venue.

The Committee most recently held a meeting on October 27, where slurs, barbs and accusations were thrown at opposing sides by meticulously tailored men using their most polite voices.

Jamil Nazarali, Head of Citadel Execution Services

Jamil Nazarali, Head of Citadel Execution Services

Jamil Nazarali, head of Citadel Execution Services, landed the best insult of the day with this gem directed at the stock exchanges:

“This industry is the only one that I am aware of where a for-profit public company regulates its customers and competitors. And I understand that you guys think that that’s important but what is it that you guys do that someone else couldn’t do. All those regulatory functions that you described, why couldn’t some other entity do that? Why does it have to be within your four walls?”

Citadel is a hedge fund and dark pool operator. (Dark pools are trading venues which lack full SEC oversight and trade in the dark without public transparency.)

Nazarali heads up Citadel’s trading operations, also known as “execution” services. Nazarali was throwing a jab at the men from the stock exchanges that had given testimony during the full day conference on how they served a public interest function by regulating their members. Dark pools compete with exchanges for customers and trading volume, are typically also broker dealers and members of the exchanges, and resent being regulated by a competitor.

Citadel is an unlikely candidate to be slinging mud, as we explained in an in-depth article on August 14, 2014.

Thomas Wittman, Executive Vice President of Nasdaq and Global Head of Equities

Thomas Wittman, Executive Vice President of Nasdaq and Global Head of Equities

Thomas Wittman, Executive Vice President of the Nasdaq stock market and Global Head of Equities, zinged both the SEC and dark pools, which are also known as “unlit” markets. Wittman told the Committee:

“Given the intense price competition, we question the time and resources spent by the Commission [SEC] analyzing whether exchanges have fully justified proposals reducing their fees. Nearly 40 percent of the executions occur on venues that lack not only pre-trade price discovery but operational and fee transparency. Yet Nasdaq has encountered difficulty in gaining Commission approval for a fee reduction for members that transact the most volume across three of its options exchanges. I ask, again, in what other industry would a company be prohibited from lowering prices for the most value and value contributing investors.”

As for the value of exchanges versus dark pools, Wittman said: “If you take a look at high volatility times like August 24, you saw that the amount of off-exchange trading almost was cut in half as flow moved to the lit venues which underscores the importance of the lit venues in capital formation.”

The Dow Jones Industrial Average plunged by 1,089 points in the opening minutes of trading on August 24. (See related article below.) Finger-pointing and hostility have grown among competing factions since that day.

Andrew Silverman of Morgan Stanley

Andrew Silverman of Morgan Stanley

Andrew Silverman, a Managing Director at the giant retail broker and investment bank, Morgan Stanley, which also operates dark pools, effectively told the Committee panel: “Look at me, I’m Sandra Dee, lousy with virginity.” For example, Silverman testified:

“Morgan Stanley’s philosophy around its dark pools has always been to leverage technology to enhance our role as a broker in seeking best execution for our clients. Morgan Stanley has never sought to compete directly with exchanges with regards to overall volume traded in any of its dark pools. This approach contrasts with the approach taken by some of the other dark pool operators under Reg ATS.”

Then there was a swipe at the SEC by Silverman:

“The current lack of clarity around the liquidity provider has also led to a contentious atmosphere in this marketplace. Given little guidance, today’s de facto market makers are left to carve out their own advantages often in the form of co-location and fast market data feeds among other things which we all know soon became a very important profit center for exchanges.”

Next from Silverman came what sounds like a push by Wall Street mega firms to gut exchanges of their regulatory role. Silverman testified:

“A negative side of fierce competition between exchanges is that the drive to increase profits conflicts with the idea of being an SRO [Self Regulatory Organization] and fulfilling the utility function that was originally envisioned by Congress. Specifically, are for profit exchanges best positioned to drive market structure changes as if they are an unbiased participant acting solely in the public interest?”

Sal Arnuk and Joe Saluzzi, co-founders of Themis Trading and authors of Broken Markets, sent a letter to the SEC on May 13, 2015 in response to a request for public comment on market structure issues. (Arnuk and Saluzzi were praised for their work in the Michael Lewis book, as was Eric Hunsader, a trading data guru who has connected many of the missing dots of the rigged market structure.)

Arnuk and Saluzzi wrote:

“Participants in our US markets deal with a technological arms race, conflicts of interest, fleeting liquidity in times of stress, and an ever increasing amount of trading taking place in a vast network of opaque darkness. The public markets are considered ‘toxic’ by varied participants. Studies point out that institutional bids and offers result in too much price movement. High frequency market makers lament that the orders sent to the exchange, outside their own, tend to be orders that have been ‘exhausted’ everywhere else. Is this a desirable outcome of modern market structure? Did the Commission envision this when it crafted Reg NMS?”

Related Articles from Wall Street On Parade:

60 Minutes Sanitizes Its Report on High Frequency Trading 

Did Small Investors Get Fleeced in the 1089-Point Plunge on August 24? 

Lawsuit Stunner: Half of Futures Trades in Chicago Are Illegal Wash Trades 

Senate: Renaissance Hedge Fund Avoided $6 Billion in Taxes in Bogus Scheme With Banks 

Senator Elizabeth Warren: High Frequency Trading Is Like the Skimming Scam in the Movie, ‘Office Space’

One Chart That Should Make Americans Wake Up

Utilization of America's Production Capacity Has Been on a Steady Decline

Utilization of America’s Production Capacity Has Been on a Steady Decline

By Pam Martens and Russ Martens: November 18, 2015 

Thanks to the Occupy Wall Street movement and more recent cross-country stumping by Senator Bernie Sanders, millions of Americans have awakened to the frightening reality that corrupted power in America is now fully engaged  in running an institutionalized wealth transfer system cleverly masquerading as an economic model. As Senator Sanders has reminded the tens of thousands turning out to hear him speak:

The U.S. has the greatest income and wealth inequality of any other major developed country;

One percent of the population now controls a greater share of pre-tax income than at any time since the 1920s, (the last time Wall Street was legally allowed to gamble for the house with bank deposits);

The top one-tenth of one percent of the super elite own almost as much wealth as the bottom 90 percent;

Since Wall Street imploded under the weight of its own corruption in 2008, destroyed the U.S. economy, used taxpayer money to bail itself out and reward the financial elites with millions of dollars in bonuses and golden parachutes, only the poor and middle class have paid the price. The one percent have reaped 58 percent of all income gains since the crash.

In addition to the inhumanity of this economic model, which has left one in every five American children living in poverty and 52 percent of Americans unable to raise $400 in an emergency (according to a 2014 Federal Reserve study), this model is also the fast track to the demise of America as an economic engine.

Above is the Capacity Utilization rate for total industry in the United States since the 1960s. This is a measure of how much of our productive capacity at plants and mines and utilities are actually being used in response to demand. Lower rates of utilization mean there is too much slack in the economy with not enough people able to afford to buy the goods or output that could be produced at 100 percent utilization. Low and declining levels of capacity utilization are completely consistent with high levels of income inequality. This also invariably leads to plant closings, layoffs, and, thus, a continuing vicious cycle of less disposable income, more slack, more layoffs, more plant closings.

If America was truly on the right track, would our plants and utilities have been operating at 85 percent of capacity in the 70s, 80s and 90s, and now only operating at 77.5 percent as of this October – despite trillions of dollars spent on unprecedented fiscal stimulus, Fed loans to Wall Street and three rounds of quantitative easing since the crash?

Wall Street’s money grab is crippling America and our children’s future and ill-conceived trade deals by the power elite are accelerating the downward trend. There is no better way to understand the real threat of declining Capacity Utilization rates than this excerpt from a piece by Andy Harshaw posted at the web site of the steel manufacturer, ArcelorMittal, on June 23, 2015:

“High levels of capacity utilization are hallmarks of successful steel companies. In order to optimize our assets, ArcelorMittal USA must find ways to achieve higher levels of capacity utilization with no loss of total production or market share.

“Record levels of steel imports – up 70 percent for flat carbon products alone since 2013 – have consumed typical market demand that domestic steelmakers like ArcelorMittal would normally serve. As a result of this and other market forces, many of our key assets are running at relatively low capacity utilization levels, and they have been for quite some time.

“Let’s focus on one example, our hot strip mills (HSMs) in the U.S., which average only 70 percent utilization. This means that they aren’t producing roughly 30 percent of the time, even though we are paying the costs associated with operating and maintaining those assets as if they were operating 100 percent of the time. Each of the companies’ four largest HSMs in the U.S. requires an average of $39 million per year in repair and maintenance just to keep them operating. On the whole, our U.S. operations require more than $1 billion in repair and maintenance costs each year.

“It is not sustainable to operate multiple HSMs at low utilization rates when the same volume of steel could be produced by fewer HSMs at higher utilization rates…

“For our facilities to succeed there is no doubt we need a stronger U.S. market, where imports compete fairly rather than via unfair trade practices to gain market share. We also need the right set of assets that match the geographic reach of our customers, a skilled workforce that embraces the competitive forces at play in our industry while being cost conscious on all fronts. Companies that adapt to changing conditions will survive; those who refuse to change will continue to fill the coffers of the bankruptcy lawyers.”

Bankruptcy lawyers, Wall Street CEOs, and beneficiaries of Washington’s gold-plated revolving door are doing just fine in America. We need a President and a Congress that genuinely care about the rest of Americans.