Tuesday, 30 June 2009


u know about the American International Corporation today only because of the greed of the executives in one of its subsidiaries, American International Group [AIG}. If we use a search engine, we know AIG as a global insurance company founded in Shanghai, China in 1919. But when we walk past the American International Building at 70 Pine Street in New York where AIG is headquartered, we think of it as the AIG Building. It's not. It's the AIC Building. There is a difference.

We know that AIG, the insurance giant which has pretty much dominated the headlines for abusing the use of $170 billion of TARP money received from the pockets of working class taxpayers, is a behemoth global insurance carrier—and one of the most powerful corporations in the world. But, if you ask anyone on the street to name the world's largest insurance company no one, until now, would have suggested it might be AIG. They will answer either MetLife (Metropolitan Insurance Co.), which has $3.3 trillion if insurance in force, or Prudential which has $2 trillion. Yet, AIG is larger than the top five "household name" life insurance companies put together. It has 375 million policyholders and over $19 trillion of insurance in force. Why in the world did AIG need a bailout?

The AIG subsidiary that caused most of the unsecured losses for the company was AIG Financial Products Corp, (the derivatives division) in London, England. AIG said its "bad bet" losses (totaling $40.5 billion last year) were the result of using what are known as "credit default swaps" that promises investors payments in mortgage bonds in the event of a default. The "credit default swaps" were used to help financial institutions insure their subprime securities holdings. As the losses mounted throughout 2008 over the subprime meltdown in 2007, AIG depleted its capital reserves—not by covering its debt owed to the financial organizations who expected payment in mortgage bonds from a company whose parent's word has been its bond since 1910, but in an AIG stock buyback as its stock plummeted in value.

When the US taxpayers, who oppose bailing out the rich, learned that AIG planned to use $450 million of the TARP money to pay promised bonuses to executives (but only after it had already shelled out $165 million of the original $170 million to executives in its derivatives department in London) the proverbial brown stuff hit the fan in Washington, DC. (It should be noted that AIG FP also has an unobtrusive office at 50 Danbury Road in Wilton, Connecticut. The building is the US headquarters for AIG FP. AIG FP in Wilton also handles derivative contracts, but it's unknown if any, or how many, US employees have, or will, received any of these extravagant bonuses.

The Democrats—the 21st century equivalent to the 1920s Keystone Kops, who proudly call the spending bills they single-handedly rammed through Congress without a single GOP vote a "bipartisan effort" (between liberal and moderate Democrats) are now feeling the type of backlash that causes arrogant politicians to lose their jobs and control of Congress to shift from one party to the other. When the politicians stick their hands too deeply into the pockets of the taxpayers, the taxpayers tend to remember the theft the next time they step into the voting booth—particularly when the great, great grandchildren of those taxpayers will still be paying the bill. The rich fat cats who profited from the financial meltdown of 2008 (reminiscent of the Bank Panic of 1906), will also still be recalling the Bailout of 2009, but they will remember those days as the turning point when the working class was returned to their medieval roles as the chattel of the overlords of banking and industry.

When Merrill Lynch paid extravagant bonuses totaling $121 million out of its TARP funds to key executives, the public became outraged. New York Attorney General Andrew Cuomo quickly issued subpoenas to force Merrill Lynch to provide the names of the executives who received bonuses.

When the Merrill Lynch greedfest was repeated by AIG Financial Products, it prompted some Democratic Congressmen and Senators to write into the second go-round of bailouts, the American Recovery and Reinvestment Act of 2009 a provision that would restrict bonuses, or heavily tax them. However, when the House and Senate versions of the Recovery and Reinvestment Act were being reconciled in Joint Conference the language was altered and all restrictions were erased. Under both House and Senate rules, when bills are reconciled in joint conference, the leadership of both parties meet and iron out the differences. No Republican has been allowed to attend any joint conference thus far in the 111th Congress. The bills were reconciled by Senate Majority Leader Harry Reid, Speaker Nancy Pelosi and White House Chief of Staff Rahm Emanuel.

On Thursday, Mar. 19, the House met and, before the sun set, it had enacted HR 1586 which imposed a 90% surtax on TARP recipients. Reid tried to ram the Senate version through that chamber on a voice vote on Friday but he was stopped by Sen. Jon Kyl [R-AZ] who successfully argued that "...I don't believe that Congress should rush to pass yet another piece of hastily crafted legislation in this very toxic atmosphere, at least without understanding the facts and the potential unintended consequences. Frankly, I think that's how we got into the current mess." The new income tax imposes a surcharge on family incomes over $250 thousand who work for companies that received bailout packages of at least $5 billion.

You need to read no farther than the heading of the legislation, "A Bill to impose an additional tax on bonuses received from certain TARP recipients..." to know the legislation was unconstitutional. The Constitution of the United States says no bills of attainder or ex post facto laws can be passed. A bill of attainder is a law that singles out a person or particular group of people for punishment. An ex post facto law is one that punishes someone after-the-fact for conduct that was not illegal when it was committed.

Even though the Democrats know the TARP Bonus Taxation Bill proposed by House Ways & Means Committee Chairman Charlie Rangel [D-NY] and 43 cosponsors violates the Constitution on two points, after George Washington University Law Professor Jonathan Turley said targeting AIG employees invited a court challenge, the Democratic leadership challenged anyone who wanted to, to take them to court. It really doesn't matter to the far left if AIG executives get to keep their bonuses because, ultimately, the far left will be able to keep their 90% tax on incomes over $250 thousand.

But here's the rub. The American people have been so focused on the AIG bonus money they ignored a closer look at a major US corporation that has flown completely off the media radar screen for just under 100 years. American International Corporation [AIC], the parent, will celebrate its centennial anniversary next year.

For a century the American International Corporation succeeded in remaining invisible because its founders thrived on absolute secrecy. And, those founders—were? AIC was incorporated in 1910. While Charles Stone's name appears as the historic founding head of AIC, the company was the brainchild of John D. Rockefeller, Sr., Andrew Mellon, J.P. Morgan, and Andrew Carnegie. An assortment of American industrialists, bankers and merchant princes joined the AIC parade over the next couple of years because they were convinced that, with the financial clout of the world's wealthiest men behind it, the new 800-lb economic gorilla on the horizon was going to be Russia. They all wanted a piece of the action in a new economy devoid of thousands of government restrictions that hamstring business.

Rockefeller's interest in Russia stemmed from the discovery of oil in Baku near the Caspian Sea in Azerbaijan. The oil field was the largest known oil strike in the world. It was controlled entirely by the Swedish munitions manufacturers Alfred and Robert Nobel and Tzar Nicholas II's banker, Baron Alphonse Rothschild. By 1884 Rothschild and Nobel were pumping as much oil from the Baku Oil Fields as Rockefeller was from all of his holdings in the United States. Rockefeller was determined to do in Russia what he had succeeded in doing in the United States in two decades—corner the refining and distribution of oil. By 1870 Standard Oil controlled 85% of the refining and distribution of oil in the entire world. By 1880, he lost most of his distribution rights in Europe to Rothschild.

Two things stood in his way of challenging Rothschild's Mazout and Bnito oil refining and distribution companies. One was the Tzar. The other was Count Sergei Witte, the Russian Finance Minister. Witte knew of Rockefeller's reputation for buying politicians and destroying competition, and convinced the Tzar to bar Standard Oil and Rockefeller from coming into Russia. In 1905 Alphonse Rothschild died. His younger brother, Edmond, became the head of the Rothschild empire. He offered Mazout and Bnito to Nobel, who could not afford the asking price. When Rockefeller offered to join forces with Nobel, the Tzar rescinded the offer. Deutsche Bank was then offered the Rothschild oil fields. When Rockefeller's shadow became visible in the Deutchebank deal, the Rothschilds were forced by the anti-Jewish conservatives in the Russian government to sell to Royal Dutch Shell or see their assets seized by the Russian government.

Rockefeller knew the only way he was going to get into Russia was to depose Tzar Nicholas II. At the moment, Rockefeller, Morgan, Mellon and his banker friends were already working hard to create the legislation needed to change the nature of the US republic by eliminating the States from the equation of power in order to create a central bank owned by them, and to legislate a national income tax to repay what the United States would soon owe to that privately-owned central bank.. Taking over a foreign country, on the other hand, required a little more effort than bribing a few Congressmen and Senators to legislate a new central bank and manipulate a Constitution by bribing politicians at both State and federal levels to ratify two constitutional amendments to make the government work better for them.

After several meetings in New York between the capitalists and Bolshevik Leon Trotsky between 1907 and 1910, Rockefeller, bankers Mellon and Morgan and steel magnate Andrew Carnegie, together with several of America's leading barons of business and merchant princes, pooled their resources, put up $50 million, and formed the American International Corporation. AIC, the cartel announced, was created to stimulate world trade. In reality, AIC was created to fund the overthrow of Tzar Nicholas II by the Bolsheviks. In a deal struck with Trotsky and revolutionist Vladimir Ulyanov, whom the world knew as Lenin, in exchange for financing the Bolshevik Revolution, the capitalists would be allowed to carve up the economy of what was soon to become the Soviet Union—the most terrifying anti-capitalist nation in the world. What that means in plainspeak is that Lenin and Trotsky doublecrossed the richest men in the world. Had the barons of business and merchant princes of America not tried to create their own version of the United States in Central Europe, the 1917 Bolshevik Revolution would have been a fizzle-farce just like the abortive January 22, 1905 Revolution that began and ended in front of the Tzar's Winter Palace on Bloody Sunday. Tzarist guards shot and killed over a hundred peasant protesters. Instead, the well-financed Bolsheviks won and deposed the Romanov dynasty.

Tzar Nicholas Pavlovich Romanov and his family were taken captive on Feb., 17, 1917 when the Bolsheviks captured the Winter Palace in St. Petersburg (which they renamed Petrograd). The Tzar and his family were held captive until the early morning hours of July 17, 1918 and, with the White Russians closing in on the villa where they were held, the Bolsheviks took the Tzar, his wife, children, and their servants to the fruit cellar and executed them.

When Lenin and the Red Army doublecrossed AIC, there were several small anti-Bolshevik separatist movements brewing throughout Russia. Those aligning to fight the Bolsheviks were landowners, middle class citizens, pro-monarchists, and other reactionaries and non-Bolshevik communists. The agents of AIC recruited one of these groups, known as the White Movement (hence, the White Army) to defeat the Bolsheviks. The White Army was headed by Generals Anton Ivanovich Denkin and N.B. Yudenich and Admiral Alexander Vasilyevich Kolchak. When the Bolshevik Revolution took place, the Whites controlled most of the country even though Lenin controlled the urban centers and the government.. AIC funded the Whites, whose ranks included most of the Tzarist officer corps—and most of the Tzar's military equipment. The White Army was actually better equipped than the Red Army. While history records the Russian Civil War as happening between 1918 and 1921, major fighting between the Reds and Whites did not stop until Oct. 25, 1922, with Gen. Anatoly Pepelyayev surrendering the last enclave of White forces on June 13, 1923.

When Lenin reneged on his deal with the American International Corporation, the money barons at AIC used their political clout to keep the American Expeditionary Forces fighting in Europe until April, 1920—16 months after World War I officially ended. On July 26, 1918 British forces under Gen. Lionel Dunsterville captured the Baku oil fields from the Ottomans. American Expeditionary Forces hurried to their defense when a major Ottoman counteroffensive took place between Aug. 26 and Sept. 14. The Allies held the oil fields for two years.

At the Paris Peace Conference in in November, 1919, the Soviets, who were blocked from participating because they were fighting a civil war, complained that Allied forces had invaded their country. At the time, the Brits were actively soliciting Russia's neighbors to attack the Bolsheviks. The League of Nations voted that no new Allied troops could be introduced into Russia and that all Allied intervention had to stop. Congress, which professed not to understand why US forces were engaged in Russia, demanded that the Wilson Administration bring the boys home. In early April, 1920, the last US troops left the Baku oil fields. On April 28, 1920, the 11th Red Army overwhelmed the weakened British forces that were still holding Baku, and took the oil fields back, ending World War I, and creating the reason for the Iron Curtain which would divide East and West for 68 years.

Who, or what, precisely, is American International Corporation? AIC is one of the two largest corporations ever formed. The other is Standard Oil which, which was broken apart by US District Court Judge Kenesaw Mountain Landis on August 3, 1907. At 4 p.m. on May 15, 1911, the US Supreme Court upheld the Landis judgment, and what was one behemoth oil giant became seven behemoth oil giants—with the Rockefeller family as the primary shareholders in all of them. The government would ultimately learn from its Standard Oil mistake because when the Reagan-era Supreme Court broke up Ma Bell, AT&T was forced to sell-off the breakaway companies.

When Rockefeller, Mellon, Morgan and Carnegie masterminded the birth of AIC, they built the corporation in what can be construed as "Standard Oil secrecy layers" that defy scrutiny. Most of the executives brought into the fold were trusted associates from each partner's own commercial ventures. Media leakage has never been a problem. The principles are so powerful that careers are made or lost by their spoken word. On top of that, their executives are compensated so well there is never a question about loyalty.

From Rockefeller's National City Bank came Frank Vanderlip, one of the Jekyll Island Seven who would not only help write the Federal Reserve Act legislation, he would also help leverage State politicians to enact the 16th and 17th Amendments by promising them fame and fortune—or failure. Vanderlip was on the board of AIC. So were notables who served at various points of time throughout AIC's century-old life, like Thomas Vail, CEO of AT&T, Percy Rockefeller (one of Senior's brothers), James A. Stillman (a Rockefeller in-law), Pierre DuPont, and George H. Walker, maternal grandfather of George H.W. Bush.

In the war years Robert S. Lovett joined the board. He would become a key advisor to President John F. Kennedy. He was one of the authors of State Department Publication 7277 on global disarmament. Lovett advocated breaching the 2nd Amendment and disarming the American people as the first step in creating global government.

Other founding directors included manufacturer Cyrus McCormick; railroad executive James J. Hill; Edwin S. Webster (Stone's partner); investment banker Otto Kahn, meat-packer Ogden Armour; Assistant Secretary of the Treasury for Taft, Beekman Winthrop; Henry Smith Pritchett, president of the Carnegie Corporation; and Joseph P. Grace, then a Standard Oil chemist. He developed petrochemical products from crude oil. Also, banker Charles H. Sabin; W.E. Corey, head of US Steel; James Cash Penney, founder of J.C. Penney; and Charles A. Coffin, who replaced Thomas Edison as CEO of General Electric.

The lives of the world's wealthiest families—the Money Mafia—are secrets shrouded by such complex layers of anonymity that the world knows nothing about them while believing they know everything. The Money Mafia encourages the fables—providing they downplay rather than magnify their wealth. In the opening days of the 20th century when JP Morgan took a young reporter from the New York American and Leslie's Weekly under his wing, he did so because Morgan wanted a conduit through which he could control the news. The reporter was Bertie Charles Forbes whom, with the help of Morgan, founded Forbes magazine.

In 1918, Forbes published his first list of the 30 richest America. Heading the list were the invisible rich whose wealth is never supposed to be mentioned by the media. Among them, alphabetically, were J. Ogden Armour, Vincent Astor, Andrew Carnegie, Pierre DuPont, Henry Clay Frick, Daniel Guggenheim, Cyrus McCormick, John Pierpont Morgan, John D. Rockefeller, Sr., Russell Sage, Jacob Schiff, Charles M. Schwab, and William Vanderbit. Since all but a few of these names own shares of the Federal Reserve, it is unlikely that any of them became "less rich" over time. The business holdings of these men included oil, coal, railroads, steel, gold and silver mining, and investment banking. Rockefeller headed the Forbes list. His wealth in 1918 was conservatively estimated at $1.2 billion by Forbes—in an age when a bank president who earned $5,000.00 per year and was considered to be an extremely wealthy man.

These were the kingmakers of the New World Order at a time when the Old World Order—the royalty of Europe, and the vast landowners of Europe—began to lose their grip on global power as the 20th century broke on the horizon. The lofty and often utopian objectives of the princes of industry and barons of banking and business were at odds with the goals of the monarchs of Europe who had ruled vast kingdoms and municipal fiefdoms that have existed since medieval days. A New World Order was formed in the ashes of World War I, with the new wealth of the New World overwhelming the old wealth of Europe. The money barons wanted a world without borders with a common currency with which to trade anywhere in the world. A global economy with a global government .

Rockefeller demanded that Forbes pull his magazine off the store shelves in 1918—and reprint it. Forbes did. From that day until now, none of the names of the wealthiest families in the world appear on any of the "wealthiest family" lists. Only the poor rich appear. The first layer of secrecy was in place.

The second layer of secrecy is confusion. Keep them guessing. When everyone is telling a different story about the histories of the accumulation of the wealth of the rich, no version is believable. Not even the measurable wealth of those associated with those who possess unfathomable wealth. American International Group [AIG] is a subsidiary of AIC. Internet searches suggest that AIG was created in 1919 by a 27-year old named Cornelius Vander Starr, a recently discharged US Army buck private from Fort Bragg, California (a military installation from 1859-64). However, the facts don't support the legend.

Sadly, on the Internet, when urban legends are repeated often enough they obfuscate the truth. Fiction becomes reality. Legend would have us believe a 27-year old, with no advanced education and no money, who served 8 months in the army at the end of WWI—and who never fought in the war and never took officer's training—was discharged as a 2nd Lieutenant after 8 months of service. Legend would have us believed he joined an insurance brokerage firm, Shean & Deasy and virtually overnight became its manager, yet quit his dream job after only a few months to become a mail clerk with the Pacific Mail Steamship Co. Starr, the legend goes, wanted to see the world—which was why he purportedly joined the Army. (Note: In 1914 the Pacific Mail Steamship Co., was purchased by AIC to get the US mail contracts for Asia, and to serve as a toehold in Asia for AIC. AIC in 1914 had already embarked on the path to creating a global economy. The first attempt by the money mafia to create world government would come in the Treaty of Versailles in 1920. The United States never signed it.)

C.V. Starr, who was born on Oct. 15, 1892, graduated from Fort Bragg High School in 1909. He began selling life insurance for the James Nelson Realty Co. in Fort Bragg around 1913. In 1914 he moved to San Francisco to sell auto insurance for the Pacific Coast Casualty Co. In 1917 he went to work for an insurance brokerage firm, Shean & Deasy, leaving them to join the army. Logic suggests he came out of the service 8 months later when the Armistice was signed as a buck private. As a soldier, he went no where and did nothing at a time when soldiers might spend one whole hitch waiting for one stripe. Some of Starr's biographers claim he came out of the army as a sergeant, others claim he made lieutenant. Neither makes sense and sound like someone remodeling Starr's past to give him a biography worthy of a wealthy man's latter-year stature.

Starr and Frank Raven formed American Asiatic Underwriters—an insurance agency selling policies, not issuing them. Raven had been selling insurance in China since 1904, and had been very successful. He amassed several million dollars, enough to begin underwriting policies. That history's probably correct. At some point, Starr and Raven formulated plans to create an insurance company that would actually insure the policyholders. That, too, is correct. But, that company was not AIG. It was AAU.

Starr returned to the United States and convinced several American insurers—in particular Globe Life, Rutgers and National Union—to act as a re-insurer, covering AAU's risk. There may have been a stipulation that forced AAU to open sales offices in the United States since that happened. But now, at age 29, Starr was on his way. But not with AIG. The new company was American International Underwriters [AIU].

(My research revealed an American International Group IPO to purchase AIU. I could not determine the date of the IPO.) Starr and his partner managed to build a very lucrative, very successful insurance company with relatively low capital in about two decades. They were so successful that AIU was under contract to manage all of AIG's overseas property-casualty business. Using guesswork alone it's likely the IPO was exercised sometime between 1947 when Mao overran China and 1950 when Starr created a new entity, CV Starr & Company. Or, at the latest, in 1955 when he formed the CV Starr Foundation whose wealth was comprised largely of AIG stock that is now worth about $3.5 billion. None of the various websites contain the history of AAU, AIU, AIG or AIC. It's almost like all of them encourage legend building.

The third layer of secrecy like the fourth, fifth, sixth and seventh layers of secrecy are, well...heavily shrouded secrecy. Piled on, layer after layer, to make it impossible for anyone to learn the truth about the wealth of the wealthiest families in the world. That wealth is so vast that it simply can't be measured in terms of dollars and cents.

The estimated "wealth" of the truly wealthy is calculated not on the total gross worth of the cash, investments and other wealth of that individual or family, but on the interest received on those those investments and holdings that are paid directly to that individual or family quarterly or annually and reported to the IRS as income. Roughly 99% of the wealth of these individuals is sheltered in tax-free trusts and foundations.

When you examine the maze that obfuscates a man who was not part of the world's elite but merely brushed the shroud that shields them, you can begin to understand how, when you ask 20 different people who the six richest men in the world might be, you will get at least a dozen answers with few of them actually getting it right. That explains how one of the most powerful corporations in the world can simply slip through the cracks.


After the oil bubble collapsed last fall, there was no new bubble to keep things humming - this time, the money seems to be really gone, like worldwide-depression gone. So the financial safari has moved elsewhere, and the big game in the hunt has become the only remaining pool of dumb, unguarded capital left to feed upon: taxpayer money. Here, in the biggest bailout in history, is where Goldman Sachs really started to flex its muscle.

It began in September of last year, when then-Treasury secretary Paulson made a momentous series of decisions. Although he had already engineered a rescue of Bear Stearns a few months before and helped bail out quasi-private lenders Fannie Mae and Freddie Mac, Paulson elected to let Lehman Brothers - one of Goldman's last real competitors - collapse without intervention. ("Goldman's superhero status was left intact," says market analyst Eric Salzman, "and an investment-banking competitor, Lehman, goes away.") The very next day, Paulson greenlighted a massive, $85 billion bailout of AIG, which promptly turned around and repaid $13 billion it owed to Goldman. Thanks to the rescue effort, the bank ended up getting paid in full for its bad bets: By contrast, retired auto workers awaiting the Chrysler bailout will be lucky to receive 50 cents for every dollar they are owed.

Immediately after the AIG bailout, Paulson announced his federal bailout for the financial industry, a $700 billion plan called the Troubled Asset Relief Program, and put a heretofore unknown 35-year-old Goldman banker named Neel Kashkari in charge of administering the funds. In order to qualify for bailout monies, Goldman announced that it would convert from an investment bank to a bankholding company, a move that allows it access not only to $10 billion in TARP funds, but to a whole galaxy of less conspicuous, publicly backed funding - most notably, lending from the discount window of the Federal Reserve. By the end of March, the Fed will have lent or guaranteed at least $8.7 trillion under a series of new bailout programs - and thanks to an obscure law allowing the Fed to block most congressional audits, both the amounts and the recipients of the monies remain almost entirely secret.

Converting to a bank-holding company has other benefits as well: Goldman's primary supervisor is now the New York Fed, whose chairman at the time of its announcement was Stephen Friedman, a former co-chairman of Goldman Sachs. Friedman was technically in violation of Federal Reserve policy by remaining on the board of Goldman even as he was supposedly regulating the bank; in order to rectify the problem, he applied for, and got, a conflict-of-interest waiver from the government. Friedman was also supposed to divest himself of his Goldman stock after Goldman became a bank-holding company, but thanks to the waiver, he was allowed to go out and buy 52,000 additional shares in his old bank, leaving him $3 million richer. Friedman stepped down in May, but the man now in charge of supervising Goldman - New York Fed president William Dudley - is yet another former Goldmanite.

The collective message of all this - the AIG bailout, the swift approval for its bank-holding conversion, the TARP funds - is that when it comes to Goldman Sachs, there isn't a free market at all. The government might let other players on the market die, but it simply will not allow Goldman to fail under any circumstances. Its edge in the market has suddenly become an open declaration of supreme privilege. "In the past it was an implicit advantage," says Simon Johnson, an economics professor at MIT and former official at the International Monetary Fund, who compares the bailout to the crony capitalism he has seen in Third World countries. "Now it's more of an explicit advantage."

Once the bailouts were in place, Goldman went right back to business as usual, dreaming up impossibly convoluted schemes to pick the American carcass clean of its loose capital. One of its first moves in the post-bailout era was to quietly push forward the calendar it uses to report its earnings, essentially wiping December 2008 - with its $1.3 billion in pretax losses - off the books. At the same time, the bank announced a highly suspicious $1.8 billion profit for the first quarter of 2009 - which apparently included a large chunk of money funneled to it by taxpayers via the AIG bailout. "They cooked those first-quarter results six ways from Sunday," says one hedge-fund manager. "They hid the losses in the orphan month and called the bailout money profit."

Two more numbers stand out from that stunning first-quarter turnaround. The bank paid out an astonishing $4.7 billion in bonuses and compensation in the first three months of this year, an 18 percent increase over the first quarter of 2008. It also raised $5 billion by issuing new shares almost immediately after releasing its first-quarter results. Taken together, the numbers show that Goldman essentially borrowed a $5 billion salary payout for its executives in the middle of the global economic crisis it helped cause, using half-baked accounting to reel in investors, just months after receiving billions in a taxpayer bailout.

Even more amazing, Goldman did it all right before the government announced the results of its new "stress test" for banks seeking to repay TARP money - suggesting that Goldman knew exactly what was coming. The government was trying to carefully orchestrate the repayments in an effort to prevent further trouble at banks that couldn't pay back the money right away. But Goldman blew off those concerns, brazenly flaunting its insider status. "They seemed to know everything that they needed to do before the stress test came out, unlike everyone else, who had to wait until after," says Michael Hecht, a managing director of JMP Securities. "The government came out and said, 'To pay back TARP, you have to issue debt of at least five years that is not insured by FDIC - which Goldman Sachs had already done, a week or two before."

And here's the real punch line. After playing an intimate role in four historic bubble catastrophes, after helping $5 trillion in wealth disappear from the NASDAQ, after pawning off thousands of toxic mortgages on pensioners and cities, after helping to drive the price of gas up to $4 a gallon and to push 100 million people around the world into hunger, after securing tens of billions of taxpayer dollars through a series of bailouts overseen by its former CEO, what did Goldman Sachs give back to the people of the United States in 2008?

Fourteen million dollars.

That is what the firm paid in taxes in 2008, an effective tax rate of exactly one, read it, one percent. The bank paid out $10 billion in compensation and benefits that same year and made a profit of more than $2 billion - yet it paid the Treasury less than a third of what it forked over to CEO Lloyd Blankfein, who made $42.9 million last year.

How is this possible? According to Goldman's annual report, the low taxes are due in large part to changes in the bank's "geographic earnings mix." In other words, the bank moved its money around so that most of its earnings took place in foreign countries with low tax rates. Thanks to our completely hosed corporate tax system, companies like Goldman can ship their revenues offshore and defer taxes on those revenues indefinitely, even while they claim deductions upfront on that same untaxed income. This is why any corporation with an at least occasionally sober accountant can usually find a way to zero out its taxes. A GAO report, in fact, found that between 1998 and 2005, roughly two-thirds of all corporations operating in the U.S. paid no taxes at all.

This should be a pitchfork-level outrage - but somehow, when Goldman released its post-bailout tax profile, hardly anyone said a word. One of the few to remark on the obscenity was Rep. Lloyd Doggett, a Democrat from Texas who serves on the House Ways and Means Committee. "With the right hand out begging for bailout money," he said, "the left is hiding it offshore."

Fast-Forward to today. It's early June in Washington, D.C. Barack Obama, a popular young politician whose leading private campaign donor was an investment bank called Goldman Sachs - its employees paid some $981,000 to his campaign - sits in the White House. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting out loopholes in a new government-created market with the aid of a new set of alumni occupying key government jobs.


Gone are Hank Paulson and Neel Kashkari; in their place are Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites. (Gensler was the firm's co-head of finance) And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits - a booming trillion-dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an "environmental plan," called cap-and-trade.

The new carbon-credit market is a virtual repeat of the commodities-market casino that's been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance.

Here's how it works: If the bill passes; there will be limits for coal plants, utilities, natural-gas distributors and numerous other industries on the amount of carbon emissions (a.k.a. greenhouse gases) they can produce per year. If the companies go over their allotment, they will be able to buy "allocations" or credits from other companies that have managed to produce fewer emissions. President Obama conservatively estimates that about $646 billions worth of carbon credits will be auctioned in the first seven years; one of his top economic aides speculates that the real number might be twice or even three times that amount.

The feature of this plan that has special appeal to speculators is that the "cap" on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year. Which means that this is a brand-new commodities market where the main commodity to be traded is guaranteed to rise in price over time. The volume of this new market will be upwards of a trillion dollars annually; for comparison's sake, the annual combined revenues of an electricity suppliers in the U.S. total $320 billion.

Goldman wants this bill. The plan is (1) to get in on the ground floor of paradigm-shifting legislation, (2) make sure that they're the profit-making slice of that paradigm and (3) make sure the slice is a big slice. Goldman started pushing hard for cap-and-trade long ago, but things really ramped up last year when the firm spent $3.5 million to lobby climate issues. (One of their lobbyists at the time was none other than Patterson, now Treasury chief of staff.) Back in 2005, when Hank Paulson was chief of Goldman, he personally helped author the bank's environmental policy, a document that contains some surprising elements for a firm that in all other areas has been consistently opposed to any sort of government regulation. Paulson's report argued that "voluntary action alone cannot solve the climate-change problem." A few years later, the bank's carbon chief, Ken Newcombe, insisted that cap-and-trade alone won't be enough to fix the climate problem and called for further public investments in research and development. Which is convenient, considering that 'Goldman made early investments in wind power (it bought a subsidiary called Horizon Wind Energy), renewable diesel (it is an investor in a firm called Changing World Technologies) and solar power (it partnered with BP Solar), exactly the kind of deals that will prosper if the government forces energy producers to use cleaner energy. As Paulson said at the time, "We're not making those investments to lose money."

The bank owns a 10 percent stake in the Chicago Climate Exchange, where the carbon credits will be traded. Moreover, Goldman owns a minority stake in Blue Source LLC, a Utah-based firm that sells carbon credits of the type that will be in great demand if the bill passes. Nobel Prize winner Al Gore, who is intimately involved with the planning of cap-and-trade, started up a company called Generation Investment Management with three former bigwigs from Goldman Sachs Asset Management, David Blood, Mark Ferguson and Peter Harris. Their business? Investing in carbon offsets. There's also a $500 million Green Growth Fund set up by a Goldmanite to invest in green-tech ... the list goes on and on. Goldman is ahead of the headlines again, just waiting for someone to make it rain in the right spot. Will this market be bigger than the energy-futures market?

"Oh, it'll dwarf it," says a former staffer on the House energy committee.

Well, you might say, who cares? If cap-and-trade succeeds, won't we all be saved from the catastrophe of global warming? Maybe - but cap-and-trade, as envisioned by Goldman, is really just a carbon tax structured so that private interests collect the revenues. Instead of simply imposing a fixed government levy on carbon pollution and forcing unclean energy producers to pay for the mess they make, cap-and trade will allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private tax-collection scheme. This is worse than the bailout: It allows the bank to seize taxpayer money before it's even collected.

"If it's going to be a tax, I would prefer that Washington set the tax and collect it," says Michael Masters, the hedge fund director who spoke out against oil-futures speculation. "But we're saying that Wall Street can set the tax, and Wall Street can collect the tax. That's the last thing in the world I want. It's just asinine."

Cap-and-trade is going to happen. Or, if it doesn't, something like it will. The moral is the same as for all the other bubbles that Goldman helped create, from 1929 to 2009. In almost every case, the very same bank that behaved recklessly for years, weighing down the system with toxic loans and predatory debt, and accomplishing nothing but massive bonuses for a few bosses, has been rewarded with mountains of virtually free money and government guarantees - while the actual victims in this mess, ordinary taxpayers, are the ones paying for it.

It's not always easy to accept the reality of what we now routinely allow these people to get away with; there's a kind of collective denial that kicks in when a country goes through what America has gone through lately, when a people lose as much prestige and status as we have in the past few years. You can't really register the fact that you're no longer a citizen of a thriving first-world democracy, that you're no longer above getting robbed in broad daylight, because like an amputee, you can still sort of feel things that are no longer there.

But this is it. This is the world we live in now. And in this world, some of us have to play by the rules, while others get a note from the principal excusing them from homework till the end of time, plus 10 billion free dollars in a paper bag to buy lunch. It's a gangster state, running on gangster economics, and even prices can't be trusted anymore; there are hidden taxes in every buck you pay. And maybe we can't stop it, but we should at least know where it's all going.

I don't really have much to say about this except for 'gently caress Goldman Sachs'.

Paper Mac posted:

why is RS so stupid about their online poo poo anyway, taibbi's blog isn't even on RS

I have no idea, he is seriously one of the best journalists in America currently working and you'd think they would want to promote his work.

For anyone not already following his blog, here's a post about Fareed Zakaria:



Deep down we all have a Puritan belief that unless they suffer a good dose of pain, they will not truly repent. In fact, there has been much pain, especially in the financial industry, where tens of thousands of jobs, at all levels, have been lost. But fundamentally, markets are not about morality. They are large, complex systems, and if things get stable enough, they move on.

via Zakaria: A Capitalist Manifesto | Newsweek Business | Newsweek.com.

From a distance I’ve always vaguely admired the skills of Newsweek’s Fareed Zakaria, who is maybe this country’s preeminent propagandist. Any writer who doesn’t admire what this guy does is probably not being honest with himself, because being the public face of conventional wisdom is an extremely difficult job — and as a man of letters Zakaria routinely succeeds, or pseudo-succeeds, at the most seemingly impossible literary tasks, making the sensational seem dull and the outrageous commonplace, rendering horrifying absolutes ambigious and full of gray areas. Wheras most writers grow up dreaming of using their talents to stir up the passions, to inflame and amuse and inspire, Zakaria shoots for the opposite effect, taking controversial and explosive topics and trying to help rattled readers somehow navigate their way through them to yawns, lower heart rates and states of benign unconcern. He’s back at it again with a new piece about the financial crisis called “The Capitalist Manifesto,” which is one of the first serious attempts at restoring the battered image of global capitalism in the mainstream press.

This writer has done work like this before, using a big canvas to rework an uncooperative chunk of history in the wake of a crisis. Zakaria is probably best known for his post 9/11 “Why Do They Hate Us?” article, a sort of masterpiece of milquetoast propaganda that laid the intellectual foundation for a wide array of important War on Terror popular misconceptions, not the least of which being the whole “They hate us for our freedom” idea — one of Zakaria’s central arguments was that poor struggling Arabs were driven to envious violence by the endless pop-culture reminders of American affluence and progress.

In one exchange in that piece Zakaria talks with an elderly Arab intellectual who scoffs at Zakaria’s suggestion that Arab cities should try to be more like globalization-friendly capitals like Singapore, Seoul and Hong Kong. The old Arab protests that those cities are just cheap imitations of Houston and Dallas, and what great and ancient civilization would want that?

I thought the old Arab’s comment was funny, but Zakaria imbued it with serious significance. “This disillusionment with the West,” he wrote, “is at the heart of the Arab problem.” And while witty Arab potshots at tacky southern strip-mall meccas like Houston were significant enough to put high up in Newsweek’s seminal piece about the root causes of 9/11, things like America’s habitual toppling of sovereign Arab governments and installation of ruthless dictators like the Shah of Iran were left out more or less entirely (Zakaria managed to write a whole section on the Iranian revolution without even mentioning that the Shah come to power thanks to a CIA-backed overthrow of democratically-elected Mohammed Mosaddeq, whose crime was ejecting Western oil companies from Iran).

Not that Osama bin Laden and his followers aren’t all homicidal lunatics who should be doused in barbecue sauce and tossed in a shark tank, but Zakaria’s piece did a monstrous disservice to Americans by glazing over the sources of Arab anger and portraying America’s enemies as jealous dupes who chose to swallow the religious extremism fed to them by those opportunistic mullahs who stepped into the power vacuum left by ineffectual socialist strongmen like Nasser. (The neat rhetorical trick of making the current political bogeyman, Islamic terrorism, a descendant of the last political bogeyman, socialism, should not go unnoticed by admirers of the propaganda art). As is the case with almost everything Zakaria writes, there was a grain of truth in such a portrait, but it had the convenient benefit of almost completely absolving America of wrongdoing in the ongoing Shakespearean death-struggle for oil that is recent Middle Eastern history. Appallingly, Zakaria even compared America’s bloodlusting pursuit of Middle Eastern resources (a history that includes numerous CIA-backed coups and more than one brutal war) to the frolicking of Tom and Daisy in The Great Gatsby — ie toppling governments and arming Saddam Hussein against Iran is like a bunch of ginned-up rich folk knocking over the china. “America has not been venal in the Arab world,” he wrote. “But it has been careless.”

Zakaria’s Capitalist Manifesto is another such grandly fuzzy apologia, a broad exercise in shifting any blame for a big crisis away from a certain unblamable segment of society, only this one is much worse. In his take on the financial crisis he offers a few basic points:
1. Gosh it sucks that the crisis happened, but it’s not as bad as people say. Remember how people used to pick on Internet stocks — well, look at Twitter!
2. The solution to what ails capitalism is more capitalism.
3. There will be a great public desire to tighten up the laws governing the economic sector, but let’s not get ahead of ourselves!
4. You know what’s a great idea? Voluntary self-regulation.
5. You can make all sorts of interesting collages just using a bunch of dollar bills and a Photoshop program.
6. If we could just all learn to be better people, everything will turn out fine.

His description of the root causes of this financial crisis are about what you’d expect from a man who invoked
The Great Gatsby to explain the mentality of the murderer of 4,000 people. When he mentions the objectionable behaviors that led to the loss of trillions of dollars in wealth and untold numbers of lost jobs and misery, he does so with distant, clinical language, like he’s describing something seen through a telescope, disappearing over the horizon. In fact his method of describing the “moral crisis” that led to the financial implosion was to begrudgingly admit that many people were less than nice. Here’s how he put it:


Most of what happened over the past decade across the world was legal. Bankers did what they were allowed to do under the law. Politicians did what they thought the system asked of them. Bureaucrats were not exchanging cash for favors. But very few people acted responsibly, honorably or nobly (the very word sounds odd today). This might sound like a small point, but it is not. No system—capitalism, socialism, whatever—can work without a sense of ethics and values at its core. No matter what reforms we put in place, without common sense, judgment and an ethical standard, they will prove inadequate. We will never know where the next bubble will form, what the next innovations will look like and where excesses will build up. But we can ask that people steer themselves and their institutions with a greater reliance on a moral compass.

This is a beautiful piece of writing. Describing the misdeeds of Wall Street in the last decade by saying “few people acted… nobly” is sort of like saying that Stalin was “not always sociable” or O.J. Simpson was “not always committed to preserving life.” I mean, talk about a freaking understatement. Forgetting entirely the other insane lies in this passage (my favorite being the one about bureuacrats not taking cash for favors — I guess he means except for Bob Rubin taking $130 million or whatever from Citi after pushing through that merger), that “not so noble” bit is where Zakaria earns his money. Because if you get into the actual gory details of what went on in those years, there’s just no way you come out of that story not wanting to see every banker on Wall Street strung up by his testicles. The crimes of this era were monstrous thieveries, committed against ordinary people in a highly systematic and organized fashion with the aid and compliance of a bought-off government, and the only way you can not perceive what happened as a profound indictment of capitalism is if you blow off the specifics entirely and try to hide the details in vague, airy words like “irresponsibility” and “excesses.”

Because the specifics matter. It’s one thing to say that Citi wasted some of the money taxpayers sent its way via the bailout; it’s another thing to say Citi wasted some of the taxpayers’ money by upholstering the pillows on the private jet Sandy Weill took to Mexico over Christmas vacation with Hermes scarves. It’s one thing to say Wall Street bankers felt pressure to chase profits; it’s another thing to say they achieved those profits by systematically robbing a whole generation of pensioners and working-class homeowners, under the noses of the politicians they bought with tens of millions in campaign contributions.

Zakaria works hard to tell the crisis story minus these outrageous details. Then he goes on to argue that, basically, nothing should be done. We mostly just need a “gut check”; we, all of us, need to rediscover that little voice in all of us that says, “if it doesn’t feel right, we shouldn’t be doing it.” I mean, that is actually what he wrote. No one needs to go to jail, we don’t need to worry about who’s to blame, we just need, you know, do a better job using our trusty moral compasses to navigate the seas of life. It’s classic Zakaria in the sense that he attacks ugly political phenomena with tired cliches and hack pablum until you’re almost too bored to keep your eyes open, then in the end reduces it all to a dumbed-down t-shirt that carries us forward to another cycle of political inaction: Laissez-faire capitalism doesn’t rip off people, people rip off people! Amazing stuff — God bless him.

my problem with taibbi is the same as my problem with chomsky. they both exist to make middle class people feel like they've been conned and duped, when it's actually the selfishness, greed and ignorance of those same middle class people that caused the problem in the first place.

Ironic war criminal posted:

my problem with taibbi is the same as my problem with chomsky. they both exist to make middle class people feel like they've been conned and duped, when it's actually the selfishness, greed and ignorance of those same middle class people that caused the problem in the first place.

Dr. Pwn posted:

Hey. It's another article in which bellicose moron Matt Taibbi acts indignant about things he doesn't understand. Thanks, LF. I can't wait for Those Fuckers who are stealing Our poo poo to Get Theirs during the Common Sense Revolution.

i think a good troll is when you know it's a troll and yet you still get pissed off or annoyed

so, Good Troll.

Ironic war criminal posted:

my problem with taibbi is the same as my problem with chomsky. they both exist to make middle class people feel like they've been conned and duped, when it's actually the selfishness, greed and ignorance of those same middle class people that caused the problem in the first place.

how did the selfishness greed and ignorance of the middle class cause goldman sachs to engage in securities fraud

Police Academy 6

Jul 12, 2006

Dr. Pwn posted:

I'm not trolling. You're an ignorant child no better than the average Fox Nation poster who loves to lap up Taibbi's worthlessly reductive garbage because his childish tantrums pander to your categorical anger against Those BanKKKers who Stole Our poo poo.

Dmitri-9 posted:

People are being duped. They might participate in a crooked system but they are ignorant participants by design.

Why do you feel the need to strip people of their agency and identity by insisting that they are but pawns being crushed under the heel of Big Business. If Americans took a step back and said "can i afford this 5 bedroom house? Do I need a new Chevvy that gets 2/2MPG? Should i keep stuffing my bloated gullet with Baconaters?" then perhaps we wouldn't be in this mess.

Jimmy Carter was probably the last person of power to actually try and get the citizenry to be aware of the consequences of their actions, but they didn't listen and now we have leaders of the bawling babies like Matt Taibbi frothing at the mouth about the very people that gave Americans exactly what they wanted:

Namely: excess. consequences be damned

Make Ready posted:

no but there was an implicit hands-off environment created by the clinton deregulation

ok but to understand that someone campaigning on "i will free the markets" actually translates to "goldman sachs will systematically defraud my pension fund" you have to understand something about behavioural economics which i guess falls under ignorance. but if that ignorance is caused by a lack of education that doesnt rigidly conform to free market ideology which is in turn caused by the pervasive neoliberal ideology of the financial and economic elites who fund the campaigns of the politicians who drive the educational agenda then you're back to shadowy cabals again

Ironic war criminal posted:

because they endorsed every bit of laissez faire capitalist bullshit by constantly electing people who pandered to big business and loved deregulation

isn't this obvious?

so if he more explictly acknowledged that the public loved clinton/bush/obama and therefore bears a large measure of the responsibility would you otherwise be ok with his analysis

Paper Mac posted:

how did the selfishness greed and ignorance of the middle class cause goldman sachs to engage in securities fraud

Firstly, shorting one's position in a market is not tantamount to securities fraud. Maybe you should stop getting your economic education from Rolling Stone Magazine.

Secondly, sale in the now-undercollateralized securities would not have been possible if not for the deliberate ignorance and complicity of overaggressive speculators who used (admittedly inaccurate) private ratings as an excuse for their inadvisable actions. These actions, as well as the harms that resulted, were allowed, encouraged, demanded, facilitated, and would not have been possible without by the greedy first-world middle class.


Ironic war criminal posted:

my problem with taibbi is the same as my problem with chomsky. they both exist to make middle class people feel like they've been conned and duped, when it's actually the selfishness, greed and ignorance of those same middle class people that caused the problem in the first place.


Dr. Pwn posted:

Firstly, shorting one's position in a market is not tantamount to securities fraud. Maybe you should stop getting your economic education from Rolling Stone Magazine.

Secondly, sale in the now-undercollateralized securities would not have been possible if not for the deliberate ignorance and complicity of overaggressive speculators who used (admittedly inaccurate) private ratings as an excuse for their inadvisable actions. These actions, as well as the harms that resulted, were allowed, encouraged, demanded, facilitated, and would not have been possible without by the greedy first-world middle class.


What is with this blame the victim poo poo? Goldman's actions were tantamount to securities fraud and would not have been possible under laws that existed just a few years ago. Maybe you should stop getting your economic education from the Goldman Sachs men's room.

Your second point is just as dumb, the actions of Goldman Sachs (and others) have affected people who have never heard of them, CDO's, CDS', etc., and can't possibly be blamed for them. Did you know that it is also possible for people who have never bought a security in their lives to suffer from the effects of global financial crises?

Ironic war criminal posted:

if he laid some blame at the feet of the american people, i would be much happier.

Are you seriously saying that Goldman Sachs was somehow forced to sell all these securities to pensions by the American people? That he isn't blaming the American people for the crimes of Goldman Sachs in an article about the crimes of Goldman Sachs hardly absolves the company of blame, but if you want to feel better about yourself by reading some angry words about Americans you can always read his article about Sarah Palin or something.

Dmitri-9 posted:

Strange, the article mentions ethics twice but only uses the word illegal when refering to actual penalties payed.

You are a moron.

I assumed he was talking about Matt Taibbi's reductive, alarmist frothing about the current crisis instead of his reductive, alarmist frothing about the late-90s tech bubble burst. My mistake.

A Debt The Founders Wouldn't Believe

By SEN. JUDD GREGG | Posted Friday, June 26, 2009 4:20 PM PT

In a 1789 letter to James Madison, Thomas Jefferson wrote: "The earth belongs to each of these generations, during its course, fully, and in their own right. The 2d. generation receives it clear of the debts and encumbrances of the 1st. The 3d of the 2d. and so on. For if the 1st. could charge it with a debt, then the earth would belong to the dead and not the living generation. Then no generation can contract debts greater than may be paid during the course of its own existence."

What would Thomas Jefferson think today, as the Obama administration puts this generation on a path to drive the debt sky-high, effectively leaving our children and grandchildren to foot the bill?

Over the past 40 years, U.S. debt has averaged 36% of our gross domestic product. Because of the current economic downturn and the fact that the government has had to serve as a lender of last resort to stabilize the financial system, we are seeing what should be only a short-term spike in our debt levels.

By the end of this fiscal year, our publicly-held debt will be about 57% of GDP. This is not a good situation, but a temporary spike in debt can be managed, just as it was in the past when we were facing the crises of World Wars I and II, the Civil War and the War of Independence. In those instances, debt was rapidly paid off during the postwar periods.

Under President Obama's budget plan for the nation, this debt will not be rapidly paid off once the recession ends. Instead, it will continue to mushroom, driven by the president's new proposed spending that we cannot afford, which comes on top of looming entitlement spending we are already facing as the baby boom generation moves into retirement.

Because of this spending, we will have budget shortfalls, or deficits, averaging $1 trillion each year for the next 10 years.

Since the president's budget does not propose to ask Americans today to pay for that additional spending through taxes, the only way for the U.S. government to get that money is to borrow it, which means adding to, not reducing, the debt. By the end of the budget period as proposed by the president, the debt will have skyrocketed to 82% of GDP, which is simply not sustainable.

Interest payments on that debt will soon be the largest single item in the federal budget — more than $800 billion per year in 10 years' time. That will eclipse what we will spend on national security, and is four times as much as we will spend on education, energy and transportation combined.

These are not abstract numbers, either — the debt will have an effect on every American. In 2019, under the president's plan, each U.S. household's share of the federal debt held by the public will be $133,000 — more than many Americans owe on their mortgage.

Passing a huge, unaffordable, debt-ridden government on to our children — a terrible thing for one generation to do to another — is only one of the troublesome aspects of this situation. The other reason for serious concern is our standing in the global economy, and most importantly, with our creditors.

Currently, the U.S. government has the highest possible credit score — a AAA from credit rating agencies such as Moody's and Standard & Poor's — so the debt issued by the U.S. Treasury is considered a very safe investment and is purchased by individual investors, public and private entities, and governments around the world.

U.S. Treasury debt is a desirable commodity, and that has helped to keep U.S. interest rates low.

In recent news, Standard & Poor's issued an early warning about the AAA rating of the United Kingdom, indicating that it might reduce the U.K.'s rating within the next two years. S&P has downgraded Ireland's debt rating twice so far this year.

What does this mean?

When a country's bond rating is downgraded, lenders will have less confidence that the country can repay its debt, and that country will have to borrow at higher interest rates.

Could this happen to the United States?

I certainly hope not, but China, our biggest creditor, is becoming increasingly concerned about our lack of fiscal discipline and the impact that continued excessive borrowing will have on the value of Treasuries that China holds.

A former adviser to the Chinese Central Bank recently said publicly that "the U.S. government should not be complacent," and noted that China has alternatives to buying U.S. Treasuries — that it could invest its money in safer vehicles.

If the Chinese start to reduce their purchases of our government securities because of our need to borrow increasing amounts of money to finance all the spending that the president has proposed, we will have to start offering higher interest payments to potential lenders to make our securities more attractive.

As that interest on U.S. Treasuries goes up, so does the financial burden on taxpayers in the next generation. This would hit the next generation with a double whammy — unnecessary debt we're already incurring, plus higher interest rates on our borrowing.

Right now we are on a perilous and unsustainable fiscal course, which, if left unchecked, will lead to some disastrous results — devaluation of the dollar, massive inflation and a confiscatory tax rate on our children that will destroy any hope for the same economic opportunities and lifestyle that we have enjoyed.

But that is exactly the plan the president has laid out. The Obama budget does nothing about the health care and Social Security costs that the credit rating agencies have warned about.

The current budget plan puts us in over our heads, fiscally speaking, and we cannot continue to ignore the warning signals. Thomas Jefferson was right — no generation should take on more debt than it can pay off during its lifetime — and we should take his wise words to heart.

Gregg, a Republican, is New Hampshire's senior senator and ranking member of the Senate Budget Committee.