How Did Mary Ellen Elia Get Hired At NYSED Given the Mess She Left In Hillsborough?

The Tampa Times has another piece about the mess former Hillsborough Superintendent MaryEllen Elia left in the school district as a result of the "innovative" evaluation teacher evaluation system she pushed in partnership with the Gates Foundation.

Here's a summary of their findings:

• The Gates-funded program — which required Hillsborough to raise its own $100 million — ballooned beyond the district's ability to afford it, creating a new bureaucracy of mentors and "peer evaluators" who don't work with students.

• Nearly 3,000 employees got one-year raises of more than $8,000. Some were as high as $15,000, or 25 percent.

• Raises went to a wider group than envisioned, including close to 500 people who don't work in the classroom full time, if at all.

• The greatest share of large raises went to veteran teachers in stable suburban schools, despite the program's stated goal of channeling better and better-paid teachers into high-needs schools.

• More than $23 million of the Gates money went to consultants.

• The program's total cost has risen from $202 million to $271 million when related projects are factored in, with some of the money coming from private foundations in addition to Gates. The district's share now comes to $124 million.

• Millions of dollars were pledged to parts of the program that educators now doubt. After investing in an elaborate system of peer evaluations to improve teaching, district leaders are considering a retreat from that model. And Gates is withholding $20 million after deciding it does not, after all, favor the idea of teacher performance bonuses — a major change in philosophy.

• The end product — results in the classroom — is a mixed bag.

Hillsborough's graduation rate still lags behind other large school districts. Racial and economic achievement gaps remain pronounced, especially in middle school.

And poor schools still wind up with the newest, greenest teachers.

Financial instability and debt were not Elia's only track missteps - there were also the multiple instances of children dying under her watch without the district taking responsibility (and action) to make sure these tragedies didn't happen again.

Here's a post from May 28 that covers that:

Complicity And Cover-Up: MaryEllen Elia's Failure Of Leadership In The Deaths Of Hillsborough Students

The tragic stories of Isabella Herrera, a 7 year old who died in 2012 while on a Hillsborough school bus, and Keith Logan Coty, a 6 year old who died of a brain hemorrhage in 2014 after getting sick at his school, suggest the kind of leadership we'll get from new NYSED commissioner MaryEllen Elia.

Then Hillsborough superintendent, Elia never took responsibility for the failure of district personnel to call 911 in a timely manner when Isabellea Herrera was found unresponsive on a Hillsborough school bus.

In fact, Elia did all she could to deflect responsibility from herself and the district and cover-up district complicity in the child's death because of an outdated policy that had school bus drivers call dispatchers instead of 911 in an emergency.

As Joe Henderson of the Tampa Tribune wrote, if not for a lawsuit from the Herrera family, the circumstances of the girl's death - a direct consequence of school district policy continued under Elia - would not have come to light:

For all the community outrage over circumstances that contributed to the death of 7-year-old special-needs student Isabella Herrera, consider this: If her parents hadn't filed a federal lawsuit over the way her case was handled, the public still wouldn't know there was ever a problem.

There wouldn't be a task force to study ongoing problems with how issues with special-needs students are addressed.

School bus drivers would continue to follow the 21-year-old policy of calling dispatchers instead of 911 in an emergency such as the one that led to Isabella's death.

Six of seven members of the Hillsborough County School Board would still be in the dark about what happened that January day on the bus taking Isabella home from classes.

Life would go on just always. Except, of course, for Isabella and her family.

She had a neuromuscular disease that made her neck muscles weak. She was supposed to have her head back as she sat in her wheelchair, but she tilted forward and it blocked her airway. When it was discovered, the driver called dispatch and the aide on board called Isabella's mother.

By the time Lisa Herrera arrived and dialed 911 herself, her daughter was blue and unresponsive. She was pronounced dead the next day.

But Superintendent MaryEllen Elia didn't make the news public. She relied on a sheriff's office investigation that she said found no criminal wrongdoing, and appeared to let it go at that. During an interview last week, I asked why she didn't release the news. She fell back on the sheriff's report.

If you're the parent of a special-needs student, though, you would have liked to know there was a problem. I should say, is a problem. There have been three other issues with special-needs kids just this year, including the recent death of a student with Down syndrome who wandered away unnoticed and drowned.

The Herrera family filed its lawsuit a few days after that — about nine months after Isabella died. Now we have a task force, and a policy change allowing bus drivers to call 911 if the situation warrants. As school board Vice Chairwoman April Griffin told The Tampa Tribune though, "It goes way, way deeper than that. But I think it's a start."

This would be a better start: Expand the task force to probe the circumstances of why it took a lawsuit to bring this to a head. This isn't a witch hunt, but there has to be accountability.

What happened in the aftermath of this tragedy was at best a case of bureaucratic bungling.

When a child dies, a leader doesn't fall back on official reports and policy excuses. A leader gets to the bottom of things and then lets everyone know what went wrong so it doesn't happen again. A leader asks uncomfortable questions about the culture in a school system that values policy and procedure over good judgment and common sense.

That didn't happen here. And if not for a lawsuit, no one would have known.

Two years later, another child died after Hillsborough school staff failed to call 911 in a timely manner:

TAMPA — Keith Logan Coty played baseball, soccer and football. He was a principal's honor roll student in the first grade at Seminole Heights Elementary School, his mother said.

He'd had a heart murmur, but the doctor had cleared him, his mother said.

He died a year ago at age 6 of a brain hemorrhage, and a lawsuit filed Friday blames staff at his school for failing to call for help quickly enough. The lapse is especially unfathomable, lawyers say, as the issue of timely 911 calls was cited in another high-profile student death in a Hillsborough public school.

"How many kids under the care of this school district must die before the district gets it right?" lawyer Steven Maher asked, announcing the federal suit in a news conference Friday.

Exactly a year ago — Jan. 17, 2014 — Keith began feeling sick after lunch, the suit says. He went back to his classroom about 12:24 p.m., complaining to his teacher about a severe headache. She told him to lie down. He did. Then he started vomiting.

About 12:51, the teacher called Keith's mother, Kaycee Teets. There was no sense of urgency in the voice mail message she left, which Maher played at the news conference. It simply asked Teets to pick up her son because he was throwing up.

Before Teets could arrive, another school employee entered the room and found Keith lying on his side, making a gurgling sound with foam streaming from his nose. "His lips were blue," the suit said. The school nurse was summoned. Although Keith was unresponsive, the suit alleges the nurse did not perform cardiopulmonary resuscitation; nor did she use the defibrillator at the school.

About 12:58 p.m., a worker in the front office called 911. The information given to the 911 operator was confusing, the suit alleges. At one point the caller said Keith was breathing. His mother insists he was not.

When an emergency vehicle arrived at 1:03 p.m., Keith was "in the corner, visibly blue, not breathing, and unresponsive." Paramedics were able to resuscitate the child, and they took him to St. Joseph's Hospital in Tampa.

A scan revealed he had a brain hemorrhage. But, according to the suit, no one told the doctors about his headache, information Teets learned hours later when she spoke with Keith's teacher. Not suspecting a neurological problem, doctors focused on possible cardiac issues instead.

Keith "went without oxygen for at least 10 minutes as a result of the delay in commencing CPR," the suit alleges. He stayed on life support long enough for his organs to be taken for donation, and he was pronounced dead later in the day.

The suit, filed days before Superintendent MaryEllen Elia could face a School Board vote on terminating her contract, is reminiscent of a suit the same firm filed in 2012, also involving a child alleged to have died after emergency treatment was delayed.

Isabella Herrera suffered a neuromuscular disability and was on a school bus when she stopped breathing. No one called 911 until Isabella's mother arrived. The school district ultimately settled that lawsuit for $800,000.

The Herrera suit was filed in federal court, alleging a civil rights violation; rather than a negligence suit in state court, where the award would have been limited under sovereign immunity. Maher was trying to prove a districtwide lack of training and care so severe, it amounted to a level of indifference toward disabled students that qualified as discrimination.

This time, Maher said, the 911 policy and procedures amount to discrimination toward all of Hillsborough's 200,000 students.

The district argued in the 2012 suit that there was no pattern of indifference. And, after the drowning death of a second special-needs child that same year, Hillsborough revamped its training of staff, particularly those who care for disabled children.

But 911 calls have remained a source of confusion. While Elia quickly stated there is no prohibition against calling 911, administrators sometimes advise staff to let the front office make the calls. Phone service is not always reliable in the classrooms, they say, and it's easier for emergency workers to find the office than a particular classroom.

Maher and Teets said that makes no sense to them.

"I would call 911. There would be no question," Teets said. "Any person would do that. I walked into a classroom and found my child, blue on the ground."

Stephen Hegarty, the district's spokesman, said, "I cannot comment on pending litigation."

Maher said his firm is asking for monetary damages, but did not specify the amount.

Where are the great leadership qualities Elia supposedly has in the aftermath of these tragedies involving Hillsborough students?

If one student dies as a result of the failure of staff to call 911 in a timely manner, wouldn't you think a "great leader" would put together an effective protocol so that such a tragedy wouldn't happen a second time?

Elia instead did her best to cover up the circumstances surrounding Isabella Herrera's death - something that was noted when Elia was feted with a commendation by the Tampa Bay City Council after she was fired as Hillsborough superintendent.

Mary Mulhern, a council member who voted against the commendation for Elia, told the Tampa Tribune:

"MaryEllen Elia was fired by her employers — by her boss, the School Board," she said. "I can't think of another case where someone gets lauded and celebrated after they've been fired from a job that is a public responsibility. … When you are responsible for the lives of children, I think one strike is too many."

Elaborating, Mulhern cited the deaths of three students:

• 7-year-old disabled student Isabella Herrera, who died in January 2012 after suffering respiratory failure aboard a school bus. A bus video show that the driver and an aide did not call 911, but used a radio to try to reach their supervisor, as was protocol, then called Herrera's mother, who arrived and called 911. The School Board, most of whose members were unaware of the death until the girl's parents sued, agreed to pay $800,000 last year to settle a federal lawsuit.

• 11-year-old Jennifer Caballero, who had Down syndrome and drowned in a pond behind Rodgers Middle School after wandering away from a crowded gym class in October 2012. The school district agreed to pay a negotiated settlement estimated at more than $500,000. Investigations led to three firings and several resignations at the school. The district also took steps after the deaths to improve safety for special-needs students on buses and in school.

• 6-year-old Keith Logan Coty, who died a day after suffering a cerebral hemorrhage in January 2014 at Seminole Heights Elementary School. In a lawsuit, his parents accuse the school district of being indifferent to student safety and of discouraging staffers from calling 911 in emergencies. The district denies the allegations.

"If somebody dies, it goes to the top," Mulhern said. In the Herrera case, she said, "her employers didn't know this happened for nine months. … For me, that's enough. That's three strikes."

Mulhern said she didn't "disagree that (Elia has) done very good work over 10 years," but the concerns about student safety were overriding for her.

"The powers that be in Tampa and Hillsborough County just circled the wagons around this powerful person," who, Mulhern noted, had the authority to give out contract. 

Say what you will about former NYSED commissioner John King's flaws as a leader - covering up district complicity in the death of a student and a failure to fix emergency protocol for 911 calls involving students weren't on the list.

The more you learn about MaryEllen Elia and her "leadership," the more you see the big mistake the Board of Regents made by hiring her as NYSED commissioner.

Also, the more you learn about Elia as a person, the more you see how appropriate her nickname - MaryEllen EVILia - is.

Did the members of the Board of Regents talked to anybody other than reformer cheerleaders when deciding to hire Elia to replace John King King at NYSED?

Here's a "great leader" who left behind her a financial disaster in the district, three dead students (two of whom might not have died had she not covered up the district's responsibility in the first death), a lot of enemies and a "mixed" academic record at best (as the Tampa Bay Times piece on the Gates Foundation/Elia evaluation mess noted.)

Why was someone this awful hired to run the New York State Education Department?

Another Banskter/Wall Street Mess

Gee, this story doesn't sound familiar at all:

Rodney Durham stopped working in 1991, declared bankruptcy and lives on Social Security. Nonetheless, Wells Fargo lent him $15,197 to buy a used Mitsubishi sedan.

“I am not sure how I got the loan,” Mr. Durham, age 60, said.

Mr. Durham’s application said that he made $35,000 as a technician at Lourdes Hospital in Binghamton, N.Y., according to a copy of the loan document. But he says he told the dealer he hadn’t worked at the hospital for more than three decades. Now, after months of Wells Fargo pressing him over missed payments, the bank has repossessed his car.

This is the face of the new subprime boom. Mr. Durham is one of millions of Americans with shoddy credit who are easily obtaining auto loans from used-car dealers, including some who fabricate or ignore borrowers’ abilities to repay. The loans often come with terms that take advantage of the most desperate, least financially sophisticated customers. The surge in lending and the lack of caution resemble the frenzied subprime mortgage market before its implosion set off the 2008 financial crisis.

Auto loans to people with tarnished credit have risen more than 130 percent in the five years since the immediate aftermath of the financial crisis, with roughly one in four new auto loans last year going to borrowers considered subprime — people with credit scores at or below 640.

The explosive growth is being driven by some of the same dynamics that were at work in subprime mortgages. A wave of money is pouring into subprime autos, as the high rates and steady profits of the loans attract investors. Just as Wall Street stoked the boom in mortgages, some of the nation’s biggest banks and private equity firms are feeding the growth in subprime auto loans by investing in lenders and making money available for loans.

And, like subprime mortgages before the financial crisis, many subprime auto loans are bundled into complex bonds and sold as securities by banks to insurance companies, mutual funds and public pension funds — a process that creates ever-greater demand for loans.

I'm sure this will all end well - just the way it all ended so well for the subprime mortgage wave and the investors who bought those subprime mortgages bundled into bonds and securities hawked by Wall Street.

Andrew Cuomo - The Dirtiest Man In The Albany Cesspool Of Corruption

So many Cuomo stories today.

First, the games he's playing with the Tappan Zee Bridge plan.

Then the story of how Cuomo, along with Chris Christie, used Christie's Bridgegate cronies to play games when they wanted to hike the Port Authority bridge/tunnel tolls.

And now this one, as has been all over the Internet today:

In early 2007, when he was state attorney general, Andrew Cuomo brought on a longtime confidant as a consultant on mortgage industry investigations, a move that has gone undisclosed until now.
The friend was Howard Glaser, and he had another job at the same time: consultant and lobbyist for the very industry Cuomo was investigating.

Glaser, who went on to become a top state official in Cuomo's gubernatorial administration, was operating a lucrative consulting firm, the Glaser Group, with a host of mortgage industry clients.
Later that year, Glaser provided insights on Cuomo's investigations to industry players on a conference call hosted by an investment bank.

Cuomo's office ended up giving immunity to one of Glaser's clients a year into his term as attorney general.

Experts say the mortgage investigations Cuomo touted as "wide-ranging" came to little, even as he held one of the country's most powerful prosecutorial positions through the financial crisis and its aftermath.

... 

Before becoming a lobbyist for the mortgage industry, Glaser worked in the late 1990s under Cuomo at the U.S. Department of Housing and Urban Development, where he was known as Cuomo's "right-hand man'' and "hammer."

Glaser declined to release a list of his clients from the period he worked for the attorney general. A 2008 bio said his clients included "mortgage insurance companies, real estate and housing trade associations, mortgage bankers, and investment research companies."
Glaser's dual role when Cuomo was attorney general "poses a serious conflict of interest," said Craig Holman of Public Citizen.

At least two of Cuomo's early investigations involved firms that Glaser acknowledged to ProPublica were his clients. The client that was granted immunity in return for cooperation was the mortgage due diligence firm Clayton Holdings.

Gee, no wonder so many of the bad actors in the mortgage mess of '08 got away without prosecution.

Cuomo's right hand man, his "hammer," was working for both them and Cuomo, the attorney general investigating them.

I have written numerous times how Albany may be a cesspool of corruption, but nobody in that city - NOBODY - is dirtier than one Andrew M. Cuomo.

Could that be any clearer than from this Glaser story?

Seeds For Next Crash Sprout

From the NY Times:

FRANKFURT — An organization representing the world’s main central banks warned Sunday that dangerous new asset bubbles were forming even before the global economy had finished recovering from the last round of financial excess.

Investors, desperate to earn returns even as official interest rates are at or near record lows, have been driving up the prices of stocks and other assets with little regard for risk, the Bank for International Settlements in Basel, Switzerland, said in its annual report published Sunday.

Recovery from the financial crisis that began in 2007 could take several more years, Jaime Caruana, the general manager of the B.I.S., said at the organization’s annual meeting in Basel on Sunday. The recovery could be especially slow in Europe, he said, because debt levels remain high. “During the boom, resources were misallocated on a huge scale,” Mr. Caruana said, according to a text of his speech, “and it will take time to move them to new and more productive uses.”

The B.I.S. acts as a clearinghouse for transactions among national central banks and also as a setting where central bankers can discuss monetary policy and other issues like financial stability or bank regulation.

Its board includes Janet L. Yellen, chairwoman of the United States Federal Reserve; Mario Draghi, president of the European Central Bank; and the heads of central banks from Japan, China, India and many other countries.

The organization often uses its annual reports to send a message to political leaders, commercial bankers and investors, and reflects a widespread view among central bankers that they are bearing more than their share of the burden of fixing the global economy.

The language in the 2014 edition was unusually direct, as was its warning that the world could be hurtling toward a new crisis."There is a disappointing element of déjà vu in all this,” Claudio Borio, head of the monetary and economic department at the B.I.S., said in an interview ahead of Sunday’s release of the report, which he described “as a call to action.”

...

The B.I.S. also had harsh words for corporations, which it said were not taking advantage of booming stock markets to step up investment. That is one reason that gains in productivity — the foundation of sustained economic growth — have slowed in most advanced economies, according to the report. “Despite the euphoria in financial markets, investment remains weak,” it said. “Instead of adding to productive capacity, large firms prefer to buy back shares or engage in mergers and acquisitions.”

The overall message from the central bankers was that the world has forgotten the lessons of recent years."The temptation to postpone adjustment can prove irresistible, especially when times are good and financial booms sprinkle the fairy dust of illusory riches,” the B.I.S. said. “The consequence is a growth model that relies too much on debt, both private and public, and which over time sows the seeds of its own demise."

How exciting - the geniuses who brought us the last crash are working on bringing us the next one.

Can You Imagine If The Wall Street Criminals And Hedge Fund Crooks Were Treated The Way Beverly Hall And The Atlanta Teachers Are Being Treated?

I thought $7.5 million dollar bail amount for former Atlanta School Superintendent Beverly Hall seemed a little high.

Turned out I was right:

Dr. Hall negotiated her $7.5 million bond — considered a largely punitive figure set by the grand jurors, some of whom argued for it to be $10 million — down to $200,000. She was allowed to use her signature to cover $150,000 of it, with the rest to be paid in cash, said David Bailey, one of her lawyers. She will pay only 10 percent of that, and most of it will be refunded, he said. Dr. Hall arrived at the jail to be processed around 7:30 p.m., surrounded by her lawyers. It was unclear how long she would be there.

Lawyers for the defendants, saying they were baffled by what appeared to be a lack of coordination between District Attorney Paul L. Howard Jr., the jail and the courts, were working to try to reduce the amount of bond set for teachers who had no criminal records and to keep them from spending time in jail. 

One of the first to arrive was Theresia Copeland, 56, who had been testing coordinator at a southeast Atlanta elementary school. She walked into the jail about 7 a.m. and was booked on a $1 million bond on charges of racketeering, theft and making false statements. 

“We’ve never had anything in education like this,” said Warren Fortson, a lawyer for Ms. Copeland and two other teachers. 

“Al Capone, I understand, didn’t have to post a $1 million bond,” he said. “I don’t think a Cobb County grandmother needs $1 million to secure her.” 

Later, Ms. Copeland’s bail was reduced to $50,000. Others also secured reduced bonds. Only one educator was still under a $1 million bond by Tuesday evening, said a spokeswoman for the Fulton County Sheriff’s Office, Tracy Flanagan. 

 And I figured the powers that be felt safe to go after these teachers and administrators because they are all black.

Turns out I was right about that too:

While defense lawyers worked to have their clients freed, a group of black clergy members and former educators spoke out, calling the charges and the bail extreme and an indication of a deeper, long-simmering racial divide in the city and the state. 

The Rev. Timothy McDonald, a spokesman for the group Concerned Black Clergy, noted that the investigators were white and the accused were largely black. 

“Look at the pictures of those 35,” he said. “Show me a white face. Let’s just be for real. You can call it racist, you can call it whatever you want, but this is overkill. We have seen people with much deeper crimes with much less bond set.” 

35 black educators, accused of a cheating scandal, receive ridiculous bail postings while the men at Goldman Sachs who knowingly sold toxic, worthless CDO's to their customers, then shorted those same CDO's and made money coming and going, remain free and clear.

Oh, and most of those men were white.

Rich and white.

Funny how that is - the rich, white bankers and traders who nearly brought the economy down in '08, the men who stole billions, remain free and clear while the black educators who allegedly cheated with their students' state tests in order to keep their jobs are given ridiculous bail amounts until the state is finally shamed into lowering them.

Jim Crow lives.

Hypocritical US Attorney Rings Hands Over Smith, Halloran Corruption (UPDATE)

US Attorney Preet Baharara expressed disappointment today as he announced the indictments of State Senator Malcolm Smith, City Councilman Dan Halloran, and others on bribery and fraud charges related to the 2013 mayoral race in New York City:

At the Tuesday morning press conference discussing the arrests of state Sen. Malcolm Smith and several others, U.S. Attorney Preet Bharara repeated his plea for elected officials to redouble their efforts to fight the seemingly endless tide of official corruption in New York.


Bharara quoted extensively from recordings of several of the accused musing on the role of money in local and state politics — at its center, that is — and said, “After statements like this, and after the string of public corruption scandals that we continue to expose, many may understandably fear that there is no vote that is not for sale, no office without a price, and no official clean of corruption. Many may understandably resign themselves to the sad truth that perhaps the most powerful special interest in politics is self-interest.”


Bharara said it was time for leaders to step up to the plate, and compared what he referred to as “the public corruption crisis in New York” to the film “Groundhog Day.” (As he acknowledged, this comparison made Bharara’s press conference itself a little like the 1993 Bill Murray comedy, since the prosecutor used the same reference in March 2011 when announcing the arrests of Sen. Carl Kruger and others in another bribery scandal.)

But as Matt Taibbi pointed out back in 2011, Preet Baharara is himself implicated in the revolving door scandal between Wall Street regulatory bodies, government officials and Wall Street and has failed to hold even one banker responsible for the 2008 financial collapse accountable:

In the end, of course, it wasn't just the executives of Lehman and AIGFP who got passes. Virtually every one of the major players on Wall Street was similarly embroiled in scandal, yet their executives skated off into the sunset, uncharged and unfined. Goldman Sachs paid $550 million last year when it was caught defrauding investors with crappy mortgages, but no executive has been fined or jailed — not even Fabrice "Fabulous Fab" Tourre, Goldman's outrageous Euro-douche who gleefully e-mailed a pal about the "surreal" transactions in the middle of a meeting with the firm's victims. In a similar case, a sales executive at the German powerhouse Deutsche Bank got off on charges of insider trading; its general counsel at the time of the questionable deals, Robert Khuzami, now serves as director of enforcement for the SEC.

Another major firm, Bank of America, was caught hiding $5.8 billion in bonuses from shareholders as part of its takeover of Merrill Lynch. The SEC tried to let the bank off with a settlement of only $33 million, but Judge Jed Rakoff rejected the action as a "facade of enforcement." So the SEC quintupled the settlement — but it didn't require either Merrill or Bank of America to admit to wrongdoing. Unlike criminal trials, in which the facts of the crime are put on record for all to see, these Wall Street settlements almost never require the banks to make any factual disclosures, effectively burying the stories forever. "All this is done at the expense not only of the shareholders, but also of the truth," says Rakoff. Goldman, Deutsche, Merrill, Lehman, Bank of America ... who did we leave out? Oh, there's Citigroup, nailed for hiding some $40 billion in liabilities from investors. Last July, the SEC settled with Citi for $75 million. In a rare move, it also fined two Citi executives, former CFO Gary Crittenden and investor-relations chief Arthur Tildesley Jr. Their penalties, combined, came to a whopping $180,000.

Throughout the entire crisis, in fact, the government has taken exactly one serious swing of the bat against executives from a major bank, charging two guys from Bear Stearns with criminal fraud over a pair of toxic subprime hedge funds that blew up in 2007, destroying the company and robbing investors of $1.6 billion. Jurors had an e-mail between the defendants admitting that "there is simply no way for us to make money — ever" just three days before assuring investors that "there's no basis for thinking this is one big disaster." Yet the case still somehow ended in acquittal — and the Justice Department hasn't taken any of the big banks to court since.

All of which raises an obvious question: Why the hell not?

Gary Aguirre, the SEC investigator who lost his job when he drew the ire of Morgan Stanley, thinks he knows the answer.

Last year, Aguirre noticed that a conference on financial law enforcement was scheduled to be held at the Hilton in New York on November 12th. The list of attendees included 1,500 or so of the country's leading lawyers who represent Wall Street, as well as some of the government's top cops from both the SEC and the Justice Department.

Criminal justice, as it pertains to the Goldmans and Morgan Stanleys of the world, is not adversarial combat, with cops and crooks duking it out in interrogation rooms and courthouses. Instead, it's a cocktail party between friends and colleagues who from month to month and year to year are constantly switching sides and trading hats. At the Hilton conference, regulators and banker-lawyers rubbed elbows during a series of speeches and panel discussions, away from the rabble. "They were chummier in that environment," says Aguirre, who plunked down $2,200 to attend the conference.

Aguirre saw a lot of familiar faces at the conference, for a simple reason: Many of the SEC regulators he had worked with during his failed attempt to investigate John Mack had made a million-dollar pass through the Revolving Door, going to work for the very same firms they used to police. Aguirre didn't see Paul Berger, an associate director of enforcement who had rebuffed his attempts to interview Mack — maybe because Berger was tied up at his lucrative new job at Debevoise & Plimpton, the same law firm that Morgan Stanley employed to intervene in the Mack case. But he did see Mary Jo White, the former U.S. attorney, who was still at Debevoise & Plimpton. He also saw Linda Thomsen, the former SEC director of enforcement who had been so helpful to White. Thomsen had gone on to represent Wall Street as a partner at the prestigious firm of Davis Polk & Wardwell.

Two of the government's top cops were there as well: Preet Bharara, the U.S. attorney for the Southern District of New York, and Robert Khuzami, the SEC's current director of enforcement. Bharara had been recommended for his post by Chuck Schumer, Wall Street's favorite senator. And both he and Khuzami had served with Mary Jo White at the U.S. attorney's office, before Mary Jo went on to become a partner at Debevoise. What's more, when Khuzami had served as general counsel for Deutsche Bank, he had been hired by none other than Dick Walker, who had been enforcement director at the SEC when it slow-rolled the pivotal fraud case against Rite Aid.

"It wasn't just one rotation of the revolving door," says Aguirre. "It just kept spinning. Every single person had rotated in and out of government and private service."

The Revolving Door isn't just a footnote in financial law enforcement; over the past decade, more than a dozen high-ranking SEC officials have gone on to lucrative jobs at Wall Street banks or white-shoe law firms, where partnerships are worth millions. That makes SEC officials like Paul Berger and Linda Thomsen the equivalent of college basketball stars waiting for their first NBA contract. Are you really going to give up a shot at the Knicks or the Lakers just to find out whether a Wall Street big shot like John Mack was guilty of insider trading? "You take one of these jobs," says Turner, the former chief accountant for the SEC, "and you're fit for life."

Fit — and happy. The banter between the speakers at the New York conference says everything you need to know about the level of chumminess and mutual admiration that exists between these supposed adversaries of the justice system. At one point in the conference, Mary Jo White introduced Bharara, her old pal from the U.S. attorney's office.

"I want to first say how pleased I am to be here," Bharara responded. Then, addressing White, he added, "You've spawned all of us. It's almost 11 years ago to the day that Mary Jo White called me and asked me if I would become an assistant U.S. attorney. So thank you, Dr. Frankenstein."

Next, addressing the crowd of high-priced lawyers from Wall Street, Bharara made an interesting joke. "I also want to take a moment to applaud the entire staff of the SEC for the really amazing things they have done over the past year," he said. "They've done a real service to the country, to the financial community, and not to mention a lot of your law practices."

Haw! The line drew snickers from the conference of millionaire lawyers. But the real fireworks came when Khuzami, the SEC's director of enforcement, talked about a new "cooperation initiative" the agency had recently unveiled, in which executives are being offered incentives to report fraud they have witnessed or committed. From now on, Khuzami said, when corporate lawyers like the ones he was addressing want to know if their Wall Street clients are going to be charged by the Justice Department before deciding whether to come forward, all they have to do is ask the SEC.

"We are going to try to get those individuals answers," Khuzami announced, as to "whether or not there is criminal interest in the case — so that defense counsel can have as much information as possible in deciding whether or not to choose to sign up their client."

Aguirre, listening in the crowd, couldn't believe Khuzami's brazenness. The SEC's enforcement director was saying, in essence, that firms like Goldman Sachs and AIG and Lehman Brothers will henceforth be able to get the SEC to act as a middleman between them and the Justice Department, negotiating fines as a way out of jail time. Khuzami was basically outlining a four-step system for banks and their executives to buy their way out of prison. "First, the SEC and Wall Street player make an agreement on a fine that the player will pay to the SEC," Aguirre says. "Then the Justice Department commits itself to pass, so that the player knows he's 'safe.' Third, the player pays the SEC — and fourth, the player gets a pass from the Justice Department."

So Baharara indicts these penny ante crooks like Smith and Halloran while letting the REAL criminals - the Wall Street and hedge fund crooks who did their best to bring the economy to collapse in 2008, enriched themselves off the bailouts, and continue to steal with impunity - to get off scot free.

And why not? 

Baharara hopes to one day follow his mentor Mary Jo White onto the Wall Street gravy train, then perhaps go back into government again as White has done, only to return to the Wall Street gravy train at some later date.

It is a joke for Baharara to ring his hands over the supposed failures of the political establishment to "step up to the plate" and rein in political corruption around the state.

Has anybody outside of then attorney general, now governor, Andrew Cuomo and current Wall Street pal Chuck Schumer done more to let the Wall Street criminals responsible for the '08 collapse off with impunity then Preet Baharara?

UPDATE - 3:47 PM: As if on cue, another financial figure and "watchdog" has just left her government post to enrich herself off the Wall Street trough:

Former top financial watchdog Mary Schapiro has become the latest official to trade a government role for a private sector job advising the industry she was charged with regulating.

Schapiro, 57, who was chairman of the Securities and Exchange Commission (SEC) for nearly four years, is joining Promontory Financial, a Washington-based firm whose clients include some of the world's largest banks and other financial services companies.

The appointment is likely to anger critics of the so-called "revolving door" between US regulators and their former charges. Senator Elizabeth Warren, among others, has blamed "regulatory capture" for many of the problems experienced by the financial services industry in recent years.

Promontory was started in 2001 by Eugene Ludwig, another former regulator who headed the Office of the Comptroller of the Currency (OCC). Earlier this year, Promontory hired former OCC chief counsel Julie Williams.

The company is seen as a "shadow regulator" – advising firms on compliance issues. It received about $2bn advising clients during an OCC investigation into foreclosure abuses.

As I've written over and over, it's all rigged, folks.

It's all rigged.

Be Very Afraid

David Stockman in full from today's NY Times:

 The Dow Jones and Standard & Poor’s 500 indexes reached record highs on Thursday, having completely erased the losses since the stock market’s last peak, in 2007. But instead of cheering, we should be very afraid.

Over the last 13 years, the stock market has twice crashed and touched off a recession: American households lost $5 trillion in the 2000 dot-com bust and more than $7 trillion in the 2007 housing crash. Sooner or later — within a few years, I predict — this latest Wall Street bubble, inflated by an egregious flood of phony money from the Federal Reserve rather than real economic gains, will explode, too. 

Since the S.&P. 500 first reached its current level, in March 2000, the mad money printers at the Federal Reserve have expanded their balance sheet sixfold (to $3.2 trillion from $500 billion). Yet during that stretch, economic output has grown by an average of 1.7 percent a year (the slowest since the Civil War); real business investment has crawled forward at only 0.8 percent per year; and the payroll job count has crept up at a negligible 0.1 percent annually. Real median family income growth has dropped 8 percent, and the number of full-time middle class jobs, 6 percent. The real net worth of the “bottom” 90 percent has dropped by one-fourth. The number of food stamp and disability aid recipients has more than doubled, to 59 million, about one in five Americans. 

So the Main Street economy is failing while Washington is piling a soaring debt burden on our descendants, unable to rein in either the warfare state or the welfare state or raise the taxes needed to pay the nation’s bills. By default, the Fed has resorted to a radical, uncharted spree of money printing. But the flood of liquidity, instead of spurring banks to lend and corporations to spend, has stayed trapped in the canyons of Wall Street, where it is inflating yet another unsustainable bubble.

When it bursts, there will be no new round of bailouts like the ones the banks got in 2008. Instead, America will descend into an era of zero-sum austerity and virulent political conflict, extinguishing even today’s feeble remnants of economic growth. 

THIS dyspeptic prospect results from the fact that we are now state-wrecked. With only brief interruptions, we’ve had eight decades of increasingly frenetic fiscal and monetary policy activism intended to counter the cyclical bumps and grinds of the free market and its purported tendency to underproduce jobs and economic output. The toll has been heavy. 

As the federal government and its central-bank sidekick, the Fed, have groped for one goal after another — smoothing out the business cycle, minimizing inflation and unemployment at the same time, rolling out a giant social insurance blanket, promoting homeownership, subsidizing medical care, propping up old industries (agriculture, automobiles) and fostering new ones (“clean” energy, biotechnology) and, above all, bailing out Wall Street — they have now succumbed to overload, overreach and outside capture by powerful interests. The modern Keynesian state is broke, paralyzed and mired in empty ritual incantations about stimulating “demand,” even as it fosters a mutant crony capitalism that periodically lavishes the top 1 percent with speculative windfalls. 

The culprits are bipartisan, though you’d never guess that from the blather that passes for political discourse these days. The state-wreck originated in 1933, when Franklin D. Roosevelt opted for fiat money (currency not fundamentally backed by gold), economic nationalism and capitalist cartels in agriculture and industry. 

Under the exigencies of World War II (which did far more to end the Depression than the New Deal did), the state got hugely bloated, but remarkably, the bloat was put into brief remission during a midcentury golden era of sound money and fiscal rectitude with Dwight D. Eisenhower in the White House and William McChesney Martin Jr. at the Fed. 

Then came Lyndon B. Johnson’s “guns and butter” excesses, which were intensified over one perfidious weekend at Camp David, Md., in 1971, when Richard M. Nixon essentially defaulted on the nation’s debt obligations by finally ending the convertibility of gold to the dollar. That one act — arguably a sin graver than Watergate — meant the end of national financial discipline and the start of a four-decade spree during which we have lived high on the hog, running a cumulative $8 trillion current-account deficit. In effect, America underwent an internal leveraged buyout, raising our ratio of total debt (public and private) to economic output to about 3.6 from its historic level of about 1.6. Hence the $30 trillion in excess debt (more than half the total debt, $56 trillion) that hangs over the American economy today. 

This explosion of borrowing was the stepchild of the floating-money contraption deposited in the Nixon White House by Milton Friedman, the supposed hero of free-market economics who in fact sowed the seed for a never-ending expansion of the money supply. The Fed, which celebrates its centenary this year, fueled a roaring inflation in goods and commodities during the 1970s that was brought under control only by the iron resolve of Paul A. Volcker, its chairman from 1979 to 1987.

Under his successor, the lapsed hero Alan Greenspan, the Fed dropped Friedman’s penurious rules for monetary expansion, keeping interest rates too low for too long and flooding Wall Street with freshly minted cash. What became known as the “Greenspan put” — the implicit assumption that the Fed would step in if asset prices dropped, as they did after the 1987 stock-market crash — was reinforced by the Fed’s unforgivable 1998 bailout of the hedge fund Long-Term Capital Management. 

That Mr. Greenspan’s loose monetary policies didn’t set off inflation was only because domestic prices for goods and labor were crushed by the huge flow of imports from the factories of Asia. By offshoring America’s tradable-goods sector, the Fed kept the Consumer Price Index contained, but also permitted the excess liquidity to foster a roaring inflation in financial assets. Mr. Greenspan’s pandering incited the greatest equity boom in history, with the stock market rising fivefold between the 1987 crash and the 2000 dot-com bust. 

Soon Americans stopped saving and consumed everything they earned and all they could borrow. The Asians, burned by their own 1997 financial crisis, were happy to oblige us. They — China and Japan above all — accumulated huge dollar reserves, transforming their central banks into a string of monetary roach motels where sovereign debt goes in but never comes out. We’ve been living on borrowed time — and spending Asians’ borrowed dimes. 

This dynamic reinforced the Reaganite shibboleth that “deficits don’t matter” and the fact that nearly $5 trillion of the nation’s $12 trillion in “publicly held” debt is actually sequestered in the vaults of central banks. The destruction of fiscal rectitude under Ronald Reagan — one reason I resigned as his budget chief in 1985 — was the greatest of his many dramatic acts. It created a template for the Republicans’ utter abandonment of the balanced-budget policies of Calvin Coolidge and allowed George W. Bush to dive into the deep end, bankrupting the nation through two misbegotten and unfinanced wars, a giant expansion of Medicare and a tax-cutting spree for the wealthy that turned K Street lobbyists into the de facto office of national tax policy. In effect, the G.O.P. embraced Keynesianism — for the wealthy. 

The explosion of the housing market, abetted by phony credit ratings, securitization shenanigans and willful malpractice by mortgage lenders, originators and brokers, has been well documented. Less known is the balance-sheet explosion among the top 10 Wall Street banks during the eight years ending in 2008. Though their tiny sliver of equity capital hardly grew, their dependence on unstable “hot money” soared as the regulatory harness the Glass-Steagall Act had wisely imposed during the Depression was totally dismantled. 

Within weeks of the Lehman Brothers bankruptcy in September 2008, Washington, with Wall Street’s gun to its head, propped up the remnants of this financial mess in a panic-stricken melee of bailouts and money-printing that is the single most shameful chapter in American financial history.

There was never a remote threat of a Great Depression 2.0 or of a financial nuclear winter, contrary to the dire warnings of Ben S. Bernanke, the Fed chairman since 2006. The Great Fear — manifested by the stock market plunge when the House voted down the TARP bailout before caving and passing it — was purely another Wall Street concoction. Had President Bush and his Goldman Sachs adviser (a k a Treasury Secretary) Henry M. Paulson Jr. stood firm, the crisis would have burned out on its own and meted out to speculators the losses they so richly deserved. The Main Street banking system was never in serious jeopardy, ATMs were not going dark and the money market industry was not imploding. 

Instead, the White House, Congress and the Fed, under Mr. Bush and then President Obama, made a series of desperate, reckless maneuvers that were not only unnecessary but ruinous. The auto bailouts, for example, simply shifted jobs around — particularly to the aging, electorally vital Rust Belt — rather than saving them. The “green energy” component of Mr. Obama’s stimulus was mainly a nearly $1 billion giveaway to crony capitalists, like the venture capitalist John Doerr and the self-proclaimed outer-space visionary Elon Musk, to make new toys for the affluent. 

Less than 5 percent of the $800 billion Obama stimulus went to the truly needy for food stamps, earned-income tax credits and other forms of poverty relief. The preponderant share ended up in money dumps to state and local governments, pork-barrel infrastructure projects, business tax loopholes and indiscriminate middle-class tax cuts. The Democratic Keynesians, as intellectually bankrupt as their Republican counterparts (though less hypocritical), had no solution beyond handing out borrowed money to consumers, hoping they would buy a lawn mower, a flat-screen TV or, at least, dinner at Red Lobster. 

But even Mr. Obama’s hopelessly glib policies could not match the audacity of the Fed, which dropped interest rates to zero and then digitally printed new money at the astounding rate of $600 million per hour. Fast-money speculators have been “purchasing” giant piles of Treasury debt and mortgage-backed securities, almost entirely by using short-term overnight money borrowed at essentially zero cost, thanks to the Fed. Uncle Ben has lined their pockets.

If and when the Fed — which now promises to get unemployment below 6.5 percent as long as inflation doesn’t exceed 2.5 percent — even hints at shrinking its balance sheet, it will elicit a tidal wave of sell orders, because even a modest drop in bond prices would destroy the arbitrageurs’ profits. Notwithstanding Mr. Bernanke’s assurances about eventually, gradually making a smooth exit, the Fed is domiciled in a monetary prison of its own making. 

While the Fed fiddles, Congress burns. Self-titled fiscal hawks like Paul D. Ryan, the chairman of the House Budget Committee, are terrified of telling the truth: that the 10-year deficit is actually $15 trillion to $20 trillion, far larger than the Congressional Budget Office’s estimate of $7 trillion. Its latest forecast, which imagines 16.4 million new jobs in the next decade, compared with only 2.5 million in the last 10 years, is only one of the more extreme examples of Washington’s delusions.

Even a supposedly “bold” measure — linking the cost-of-living adjustment for Social Security payments to a different kind of inflation index — would save just $200 billion over a decade, amounting to hardly 1 percent of the problem. Mr. Ryan’s latest budget shamelessly gives Social Security and Medicare a 10-year pass, notwithstanding that a fair portion of their nearly $19 trillion cost over that decade would go to the affluent elderly. At the same time, his proposal for draconian 30 percent cuts over a decade on the $7 trillion safety net — Medicaid, food stamps and the earned-income tax credit — is another front in the G.O.P.’s war against the 99 percent. 

Without any changes, over the next decade or so, the gross federal debt, now nearly $17 trillion, will hurtle toward $30 trillion and soar to 150 percent of gross domestic product from around 105 percent today. Since our constitutional stasis rules out any prospect of a “grand bargain,” the nation’s fiscal collapse will play out incrementally, like a Greek/Cypriot tragedy, in carefully choreographed crises over debt ceilings, continuing resolutions and temporary budgetary patches. 

The future is bleak. The greatest construction boom in recorded history — China’s money dump on infrastructure over the last 15 years — is slowing. Brazil, India, Russia, Turkey, South Africa and all the other growing middle-income nations cannot make up for the shortfall in demand. The American machinery of monetary and fiscal stimulus has reached its limits. Japan is sinking into old-age bankruptcy and Europe into welfare-state senescence. The new rulers enthroned in Beijing last year know that after two decades of wild lending, speculation and building, even they will face a day of reckoning, too. 

THE state-wreck ahead is a far cry from the “Great Moderation” proclaimed in 2004 by Mr. Bernanke, who predicted that prosperity would be everlasting because the Fed had tamed the business cycle and, as late as March 2007, testified that the impact of the subprime meltdown “seems likely to be contained.” Instead of moderation, what’s at hand is a Great Deformation, arising from a rogue central bank that has abetted the Wall Street casino, crucified savers on a cross of zero interest rates and fueled a global commodity bubble that erodes Main Street living standards through rising food and energy prices — a form of inflation that the Fed fecklessly disregards in calculating inflation.

These policies have brought America to an end-stage metastasis. The way out would be so radical it can’t happen. It would necessitate a sweeping divorce of the state and the market economy. It would require a renunciation of crony capitalism and its first cousin: Keynesian economics in all its forms. The state would need to get out of the business of imperial hubris, economic uplift and social insurance and shift its focus to managing and financing an effective, affordable, means-tested safety net. 

All this would require drastic deflation of the realm of politics and the abolition of incumbency itself, because the machinery of the state and the machinery of re-election have become conterminous. Prying them apart would entail sweeping constitutional surgery: amendments to give the president and members of Congress a single six-year term, with no re-election; providing 100 percent public financing for candidates; strictly limiting the duration of campaigns (say, to eight weeks); and prohibiting, for life, lobbying by anyone who has been on a legislative or executive payroll. It would also require overturning Citizens United and mandating that Congress pass a balanced budget, or face an automatic sequester of spending. 

It would also require purging the corrosive financialization that has turned the economy into a giant casino since the 1970s. This would mean putting the great Wall Street banks out in the cold to compete as at-risk free enterprises, without access to cheap Fed loans or deposit insurance. Banks would be able to take deposits and make commercial loans, but be banned from trading, underwriting and money management in all its forms. 

It would require, finally, benching the Fed’s central planners, and restoring the central bank’s original mission: to provide liquidity in times of crisis but never to buy government debt or try to micromanage the economy. Getting the Fed out of the financial markets is the only way to put free markets and genuine wealth creation back into capitalism. 

That, of course, will never happen because there are trillions of dollars of assets, from Shanghai skyscrapers to Fortune 1000 stocks to the latest housing market “recovery,” artificially propped up by the Fed’s interest-rate repression. The United States is broke — fiscally, morally, intellectually — and the Fed has incited a global currency war (Japan just signed up, the Brazilians and Chinese are angry, and the German-dominated euro zone is crumbling) that will soon overwhelm it. When the latest bubble pops, there will be nothing to stop the collapse. If this sounds like advice to get out of the markets and hide out in cash, it is. 

David A. Stockman is a former Republican congressman from Michigan, President Ronald Reagan’s budget director from 1981 to 1985 and the author, most recently, of “The Great Deformation: The Corruption of Capitalism in America.”

"We Have Never Seen This"

Clearly the Masters of the Universe in the Eurozone are in a predicament they do not jnow how to solve:

BRUSSELS (Reuters) - Euro zone finance officials acknowledged being "in a mess" over Cyprus during a conference call on Wednesday and discussed imposing capital controls to insulate the region from a possible collapse of the Cypriot economy. 

In detailed notes of the call seen by Reuters, one official described emotions as running "very high", making it difficult to come up with rational solutions, and referred to "open talk in regards of (Cyprus) leaving the euro zone". 

The call was among members of the Eurogroup Working Group, which consists of deputy finance ministers or senior treasury officials from the 17 euro zone countries as well as representatives from the European Central Bank and the European Commission. The group is chaired by Austria's Thomas Wieser. 

Cyprus decided not to take part in the call, a decision that several participants described as troubling and reflecting the wider confusion surrounding the island's predicament. 

"The (Cypriot) parliament is obviously too emotional and will not decide on anything, if Cyprus does not even feel that they can attend the call it is a big problem for us," the French representative said, according to the notes seen by Reuters. 

"We have never seen this." 

The German representative raised the need to learn more about capital outflows from Cyprus to Russia and Britain, and emphasized that "we stand ready to find a solution immediately" as long as the parameters of the bailout agreed among euro zone finance ministers on Saturday are respected.

The official also referred to the need to resolve Cyprus's two biggest banks, both of which are close to collapse, and mentioned the possibility of Cyprus leaving the euro zone. 

In the event of an exit, the official said steps needed to be taken to "ring-fence" the rest of the euro zone from the impact and to ensure there was no contagion to Greece. 

One issue repeatedly raised on the call was the risk of large outflows of capital once Cypriot banks reopen, probably on Tuesday. The ECB representative said the situation was being closely monitored and "technical preparations" were being made to try to limit the amount of any outflow. 

"Some additional laws need to be passed. Overall we are in a very difficult situation," the official said, according to the notes. "(We're) trying to do everything within the powers to limit any unauthorized outflows." 

 Translation - they're flying by the seat of their pants, they really don't know what they're doing and in the end, if they don't get lucky, this could all go very, very wrong.

Ah, the fun the Best and Brightest around the world bring us.

I Thought Everything Was Turning Around

The message recently was that the economy had turned a corner, that not even the sequestration mess could put a dent into it.

But here's what the Cyprus news is doing:

NEW YORK, March 19 (Reuters) - U.S. Treasuries prices
climbed on Tuesday as a plan in Cyprus to tax bank accounts to
help pay for a bailout unraveled, creating uncertainty about the
island country's financial future and reviving fears about the
stability of the euro zone.

    Benchmark yields hit a two-week low. The Cypriot parliament
overwhelmingly rejected a proposed levy on bank deposits, a
proposal that had sent investors dumping stocks and scurrying
for safe havens this week.
    The rejection by Cyprus's parliament of the levy brings the
country, one of the euro zone's smaller members, to the brink of
financial collapse. 
    Treasuries are being dogged by contagion fears, said Jason
Rogan, managing director in Treasuries trading at Guggenheim
Partners in New York.
    "There are some people saying it could occur in Italy and
Spain, that is really where the fear is building and why
Treasuries are reacting the way they are," he said.  
    Robert Tipp, chief investment strategist for Prudential
Fixed Income, said, "It's pretty much wide open on the rumor
mill for Cyprus right now.
    "People are at a loss. There are a lot of factors in play,"
he said, calling the situation a "jump ball" that could go in
many possible directions.

It really doesn't take much for the so-called recovery to get put on hold.

We heard how things had turned around in the first quarter in both 2011 and 2012.

Until the economy slowed back down to a crawl both years.

Now we have sequestration and this Eurozone flare-up.

Be interesting to see how things go from here.

Wouldn't wanna bet my Spring Break on new highs for the Dow now.

A Demonstration

Reuters describes the scene in Nicosia:

(Reuters) - Cyprus's parliament overwhelmingly rejected a proposed levy on savings in banks as a condition for a European bailout on Tuesday, throwing international efforts to rescue the latest casualty of the euro zone debt crisis into disarray.

The vote in the tiny legislature was a stunning setback for the 17-nation bloc; lawmakers in Greece, Portugal, Ireland, Spain and Italy have all accepted unpopular austerity measures over the last three years to secure European aid.

With hundreds of demonstrators facing riot police outside parliament and chanting "They're drinking our blood", the ruling party abstained and 36 other lawmakers voted unanimously to reject the bill, bringing the Mediterranean island, one of the smallest European states, to the brink of financial meltdown.

EU countries said before the vote that they would withhold 10 billion euros ($12.9 billion) in bailout loans unless depositors in Cyprus, including small savers, shared the cost of the rescue; the European Central Bank had threatened to end emergency lending assistance for teetering Cypriot banks, which were hard hit by the financial crisis in neighboring Greece.

The demonstrators were unbowed: "This is a great decision for Cyprus," said Andreas Miltiadou, a 65-year-old pensioner among the crowd. "The voice of the people was heard."

Make no mistake, the road ahead is difficult.

The Cypriots may be crushed.

But telling the IMF, the ECB, the EC and most especially Germany that they will NOT stand by placidly while the powerful devour them was an important message to send to those in the corridors of power.

And some of them may be getting a little of that message.

Reuters describes the euro zone finance ministers as "stunned" by the backlash against the bailout.

They thought that they could push the 6.75%/9.9% levy through and no one would say or do anything much to stop them.

Instead that move initiated a firestorm.

Felix Salmon lays out two ways this could go:

The best-case scenario here is that the vote by the Cypriot parliament is a “phoney war”, in Dan Davies’s words: “A vote on which the government abstains is like opening with two hearts at bridge. It’s a bidding convention, not a serious plan.” Cyprus and the EU will go back for another round of negotiations, with Cyprus trying to front that it has a great offer from the Russians, and the two sides will come to a compromise which doesn’t involve taxing insured depositors. The banks will then reopen, the Russians will pull a large chunk of their remaining money out of the country, the ECB will provide all the liquidity that the Cypriot banks need, and Cyprus will muddle through in an austere kind of way.

The worst-case scenario — call it #CypriOut — is that talks just break down entirely, with no plan acceptable to both the Eurogroup and the Cypriot parliament, while the Russians ultimately decide that they don’t want to throw good money after bad. In that event, Cyprus ends up with a chaotic default and devaluation — think Argentina 2002, only on an island which is already fractured along intractable ethnic lines.

The cost of CypriOut to the ECB and to Europe as a whole would be substantial, both in euros and in precedent. If you think that taxing deposits is a bad precedent, just wait until you see what happens when the world learns that a country can leave the eurozone after all. So a lot of people are going to spend a lot of effort trying to avoid it. And judging by recent European history, some last-minute deal will manage to get cobbled together somehow. But this whole situation is horribly messy — it reminds me of the Argentine political chaos in March 2001, a few months before the country finally defaulted.

Salmon says they probably will get the last minute deal here that staves off chaos, but unfortunately for the EU, this seems to be the only way they can do things and it isn't going to work forever.

There are only so many last minute, cobbled-together solutions they can pull off before they finally CAN'T pull one off and the shit REALLY hits.

The Damage Is Done

From The Guardian:

Experts warned that even if the levy on deposits below €100,000 was axed entirely, it would not be enough to restore confidence in the bank guarantee system put in place across the eurozone.

"The craziest thing about the Cyprus announcement is the huge potential cost of undermining the spirit of the bank deposit guarantee for what is a small saving in the overall scheme of European finances. Even if policymakers row back from taxing small depositors in Cyprus, the damage has been done," said Tristan Cooper, analyst at the fund managers Fidelity Worldwide.

They can try and undo the damage all they want.

It's baked in now.

When the shit hits the fan, they burn depositors before they burn bond holders.

A commenter on The Guardian story writes:

Disgusting theft of peoples savings by the EU. The bail out - like all the bailouts - does not go to the cyprus - it goes straight to the creditors i.e. other banks. Ordinary people are being robbed in order to preserve their profits and bonuses. The talk of money laundering is pure smokescreen - a huge proportion of the money flowing the city of london is dodgey.

This is the sort of shit that corrupt dictatorships pull - how much longer are we going to let the bankers and their political puppets ravage our societies?

A very good question.

How much longer are we going to let the bankers and their political puppets ravage our societies? 

Cyprus Banks Closed Until Thursday

Because everything is under control, you see:

BERLIN — European fears of renewed economic crisis flared Monday as officials took the unprecedented step of targeting bank deposits in Cyprus to pay part of the price tag of a bailout for the troubled island nation.

The proposal to tax all bank deposits, which must be approved by Cyprus’s parliament, sparked a bank run on the tiny nation and raised questions about whether a precedent was being set that could expose other European deposits in future bailouts. Amid turmoil in the country and uncertain parliamentary support, Cypriot leaders delayed a vote on the proposal until Tuesday and shuttered banks until Thursday to avoid further deposit losses. Finance officials from the 17-nation euro zone were scheduled to confer by telephone Monday to discuss the situation.

The Guardian reports the Cypriot government will not hold the bailout vote tomorrow, as there are not enough votes right now to pass it:

The Greek TV station Antenna is reporting that Cyprus president Nicos Anastasiades was planing to tell the Eurogroup tonight that he doesn't have enough support to get the bailout deal approved by parliament.

That won't come as a shock to anyone - especially with his own coalition partner, DIKO, demanding changes (see 7.17pm).

Eurozone finance ministers were due to start holding a videoconference call to discuss Cyprus an hour ago. No news flashes yet....

The videoconference call among Eurozone ministers is now over. Here are the headlines:

Eurogroup gives Cyprus 'leeway' over savings tax

Breaking: Eurozone finance ministers have ended their video conference call on the Cyprus crisis.
And the big news is that the Eurogroup have apparently agreed to give Cyprus more flexibility on its bank levy. As long as it hits the €5.8bn target. And it appears that tomorrow's vote in parliament still goes ahead.
That's according to a source in the Greek finance minister, interviewed by Reuters.
Here are the latest snaps off the Reuters terminal:
• EUROGROUP MEETING ON CYPRUS OVER, EUROGROUP GIVES CYPRUS MORE FLEXIBILITY ON BANK LEVY - GREEK FINMIN SOURCE
• EUROGROUP TO SAY THAT CYPRUS SHOULD SAFEGUARD PROTECTION OF DEPOSITORS BELOW 100,000 EUROS - GREEK FINMIN SOURCE
• CYPRUS PARLIAMENTARY VOTE ON BANK LEVY TO TAKE PLACE ON TUESDAY, AS PLANNED - GREEK FIN MIN SOURCE
• CYPRUS SHOULD STILL RAISE 5.8 BILLION EUROS FROM THE BANK LEVY AS PLANNED - GREEK FINANCE MINISTRY SOURCE

And The Guardian posted a note from JP Morgan Chase analysts on the meaning of all of this:

JP Morgan: material risks from Cyprus

Analysts at JP Morgan have just published a new research note, warning that the financial markets have underestimated the risks posed by Cyprus.
They suggest that investors could be wrong to think the current deadlock over the bailout will be resolved, or that the eurozone's long-term "crisis management framework" remains intact.
With Cyprus, the rest of the eurozone, and Moscow all at odds over the plan, the near-term risks are 'material', JP Morgan warned.
Cyprus's fundamental problem, the bank says, is that it is "politically impossible to impose the extent of losses on insured depositors [those with less than €100,000 in the bank] that the weekend agreement envisaged".
This leaves Cyprus with three options, none very pleasant:

Option A could be to recalibrate the pain so that insured depositors do not need to pay anything, while uninsured depositors pay around 15.4% of their deposits.

The difficulty (and the main reason why this approach was not tried initially) is that the burden would fall disproportionately on
Russian institutions and individuals. Russian influence is Cyprus is considerable; and statements from President Putin indicate that he would be extremely hostile to such an approach. There is some possibility that Russia would respond to a larger haircut by refusing to roll its existing €2.5bn loan to Cyprus; meaning that this option would still leave a significant shortfall. In such a scenario, either the haircut on uninsured deposits would need to be around 21.8%, or further Troika funding would need to be found.

Option B could be to go straight to requesting additional support from the Troika.

The Eurogroup is holding a further conference call this evening, which is likely to investigate the near-term implications of the Cypriot agreement. In our view, a significant amendment of the terms of the deals (which calls for €5.8bn to be found from deposit haircuts) is unlikely.
Politically, it could be very difficult for Germany in particular to make any kind of U-turn (especially since part of the purpose of the whole exercise has been to demonstrate the Government's hard-line to domestic voters). The Eurogroup could propose looking at different parts of the capital structure, but this could risk compounding the existing error by creating additional uncertainties. Finance Ministers may look for other
forms of funding, but their task looks difficult (it is possible that Cyprus will revisit the idea of securitising future gas revenues, which we were surprised was not utilised in the initial proposal).

Option C could be to tweak the current pain distribution so that less of the burden falls on the insureds.

The Government has already proposed staggering the burden so that depositors with less than ?100,000 pay 3%,those with less than €500,000 pay 10% and those with more than €500,000 pay 15%. To our mind, this looks like shifting deckchairs.

And in the long term... JP Morgan argues that the "breach of faith between Euro area policymakers and regional depositors" will remain.

They're trying their best to undo the damage the initial agreement did.

Even if they're able to do that (and that's still a big if), having already let the "bail in" cat out of the bag and tried to stick mom and pop depositors with some of the bank bail out bill will not be forgotten for a long, long time.

You can bet the next time some banks in Spain, Italy, Portugal or France need bailing out, people will run to the exits with all the cash they can get out of those banks no matter what the ECB, EC and IMF says to try and reassure them.

That's what JP Morgan Chase means when they say the "breach of faith between Euro area policymakers and regional depositors" will remain long term.

Cypriot Officials Make Like The UFT Leadership

The IMF, the EC and the ECB supposedly don't care how the brackets are done - they just want depositors to pay for the bail out of Cyprus' banks.

So now we get word of this:

NICOSIA, Cyprus--Cyprus and its prospective international lenders are considering altering brackets on a one-off deposit levy agreed to as part of a bailout deal reached Saturday that will see savers suffer losses in exchange for the country's EUR10 billion bailout, an official with knowledge of the situation said Sunday. 

The plan that is currently under consideration will leave the target revenue of the extraordinary levy unchanged at EUR5.8B but will seek to protect smaller depositors. 

According to the official a new plan would see deposits up to EUR100,000 taking a loss of under 5%; of EUR100,000 to EUR500,000 under 10%; and over EUR500,000 of about 13%. 

The original deal that Cyprus struck with its euro-zone peers and the troika of the European Central Bank, the European Commission and the International Monetary Fund is to impose a one-off levy of 6.75% to all deposits up to EUR100,000 and of 9.9% to those above. 

While there was no indication that a new, more nuanced plan to cushion the pain for smaller depositors would be eventually agreed to, one senior European Union official said that it was feasible to change the original plan in cooperation with the Cypriot authorities. 

Cypriot president Nicos Anastasiades in a televised address to the nation Sunday evening hinted that talks on a new plan were underway. 

""I continue to fight so that the eurogroup's decisions are differentiated in coming hours so that the consequences can be limited, particularly for small savers," he said," Mr. Anastasiades said.

So first they announce the 6.75% on $130,000 and below, 9.9% on $130,000 and above, then they say:

"Okay, we hear your pain.

We'll change it to less than 5% for under $130,000, less than 10% for $130,000- $710,000 and 13% above $710,000.

This deal is the best we could do considering the circumstances, and really, compared to the deal Bloomberg and Klein, er, Germany and the IMF really wanted, it scrapes the skies it's so good!"

Yeah, I've seen this kind of thing before.

The reality is, the deal scrapes the dogshit off the street and hands it to everybody for dinner no matter what they change it to.

Shit sandwich anyone?

How The Wealthy Steal Your Wealth

From a comment at Reuters on the Cyprus "bail in":

The criminal wealthy class thinks this may set a dangerous precedent.

Yet when the criminal wealthy class was bailed out by massive government payments to save the wealthy from their giant gambling losses, we heard no complaint from them about any setting of precedents.

Today in America, the Fed continues the massive transfer of cash into the hands of the criminal wealthy class, with its stealthily named QE (quantitative easing).

The Fed’s QE is the biggest boon to the wealthy ever witnessed by modern markets.

The Fed has been buying up, from the wealthy, every worthless note the wealthy had been stuck with.

The Fed has been buying everything, you name it. Worthless junk that nobody else would buy, the Fed has been buying it for top dollar, taking it off the hands of the wealthy.

The wealthy can barely contain themselves at their good fortune. Who would have thought they could get rid of those worthless pieces of paper? Yet, the Fed has now paid them roughly $1.5 trillion in cold, hard cash.

The wealthy, who had expected to lose everything, are now made richer than ever.

The Fed are very happy to accomodate them using the government’s money, and get invited to the country-club parties of the elite. And even President Obama, too, yearns for the invitations to the country-club parties of the elite, so he’s all in with the QE scheme too. No problem.

Once again in life, the wealthy criminal class wins, effortlessly. And the common man is ground into the floor under their heal.

QE is a far greater crime than TARP, and far more subtle for the average citizen to grasp.

The Cyprus bank levy is a tiny refreshing breath of fresh air in the opposite direction.

Now, of course, we hear loud protests from the criminal oligarchs about setting bad precedents.

It's true that at least the Cyprus heist is more transparent that QE.

Gotta say that for it.

Cypriots Are The Guinea Pigs

I think this is exactly right:

One flabbergasted Larnaca bank employee, 28, was grabbing a coffee before returning to the rolling TV news he said the nation was glued to. He found the bank levy an "extraordinary" surprise. "Are we the guinea pigs? There's a feeling they are trying this out on us before they do it elsewhere. Let's see how the markets react."

So now it looks like they may lower the levy on accounts under $130,000 to 3% in some attempt to assuage people that it's not so bad.

But make no mistake - if they get away with this here, they will do this elsewhere in the near future.

The Precedent Is Set - Now Come The Consequences (UPDATED - 5:28 PM)

Doesn't matter if the Cypriot House of Representatives votes for the "bail-in" or not - the precedent that your money will be stolen to prop up the system has been set:

Stelios Platis, the managing director of MAP, a Cyprus-based financial services firm and a former economic adviser to Mr. Anastasiades, said the effect would be the same “whether the Parliament approves the measure or not.” 

“As soon as banks in Cyprus reopen, people will rush to take all their money out, because they don’t believe this is a one-off deal,” he said. “When a bank run happens, the E.C.B. will have to pump in liquidity,” he added, “and what you will have is a shell of a banking system supported by E.C.B.-eligible Cyprus bonds, which will rocket the debt of Cyprus out of control.” 

...

In Nicosia, the lines at cash machines Saturday disappeared temporarily, mainly because A.T.M.’s had been drained. But on Sunday, at a main branch of Laiki Bank, employees were seen inside the darkened building hovering over computers and filling machines with cash. 

As word got out, groups of people arrived in a steady stream to withdraw money. Many expressed anxiety over what they said were dictates from Brussels and Berlin that would have implications far beyond Cyprus’s shores. 

“They are trying to make an experiment with a small country,” said Stefan Kourbelis, a manager at the Centrum Hotel in Nicosia’s main square, echoing a widely held view. “If it works, the next one could be Spain, Italy and others. If things go badly, they can just say, ‘Who cares about Cyprus?”’ he said.

The next few days in the Eurozone ought to be a blast.

They'll be lucky if they don't set off bank runs in Italy, Spain and Portugal with this "deal."

And once the bank runs start there, don't assume the Best and Brightest will be able to contain it to the weakened Eurozone economies:

On Thursday, Société Générale analysts made a prescient call on Europe.

"It is far too early to dismiss euro area crisis as a key [market] driver," wrote SocGen's Vincent Chaigneau. "We fear another shockwave in the spring."

As it turns out, they may not have had to wait very long. News this weekend that the ECB, EU, and IMF bailout of the Cypriot banking system will include an instant 10 percent "tax" on bank deposits before banks re-open following Monday's holiday has already triggered runs on ATMs there.

Now, the banks have a problem on their hands. "The Cypriot cabinet has declared Tuesday a bank holiday, for fear of capital flight, and this may even be stretched to Wednesday, as depositors are certain to withdraw huge sums from the Cypriot banks after the haircut imposed," reports Greek newspaper Kathimerini.

Many market observers are expressing concerns that the decision could have a ripple effect throughout Europe come Monday when markets open. After all, if European leaders have decided to violate the unspoken rule of bank bailouts – that deposits are sacrosanct – what's to say it can't happen in a bigger eurozone country, like Spain?

In a Sunday morning note to clients, Morgan Stanley economist Joachim Fels wrote, "I view this as a worrying precedent with potentially systemic consequences if depositors in other periphery countries fear a similar treatment in the future."

"This will probably go down as an ill-thought-out rescue plan with consequences for peripheral Europe," says Galy. "It breaks a cardinal rule — namely, public trust on which money relies."
The decision, therefore, has everyone scratching their heads. Why would European leaders play with that public trust in bank deposits?

The SocGen report last week predicting a new eurozone "shockwave" this spring summed it up concisely: "Germany, now six months into a general election, will not be keen to share further risks and tolerate policy slippage."

In other words, German politicians are up for re-election in September, and bailouts of other countries with German taxpayer funds don't help their cause much. So, Cyprus had to be made to share in the burden somehow — hence the haircut on deposits.

"Conditionality is here to stay!" wrote SocGen economist Michala Marcussen in a reaction to the deal. "Indeed, there appears to be no change in the economic policy model of austerity and structural reform that has characterised the euro crisis to date."

The Italian elections demonstrated that voters fed up with that austerity could ultimately break the confidence instilled in European markets since ECB President Mario Draghi gave his famous "whatever it takes to save the euro" speech in July.

The Cyprus deal may finally be a good illustration of the risks markets face from the influence German voters as well — the ones ostensibly coming at the austerity debate from the exact opposite perspective.

"It could be the trigger that our colleagues were expecting," says SocGen strategist Sebastien Galy.

Want to bet that a shockwave set off in Europe doesn't land heavily on these shores too?

UPDATE: Reuters reports the following:

(Reuters) - Cyprus was working on a last-minute proposal to soften the impact on smaller savers of a bank deposit levy after a parliamentary vote on the measure central to a bailout was postponed until Monday, a source said.

In a radical departure from previous aid packages, euro zone finance ministers want Cyprus savers to forfeit a portion of their deposits in return for a 10 billion euro ($13 billion) bailout for the island, which has been financially crippled by its exposure to neighboring Greece.

The decision, announced on Saturday morning, stunned Cypriots and caused a run on cashpoints, most of which were depleted within hours. Electronic transfers were stopped.

The originally proposed levies on deposits are 9.9 percent for those exceeding 100,000 euros and 6.7 percent on anything below that.

The Cypriot government was on Sunday discussing with lenders the possibility of changing the levy to 3.0 percent for deposits below 100,000 euros, and to 12.5 percent for above that sum, a source close to the consultations told Reuters on condition of anonymity.

The move to take a percentage of deposits, which could raise almost 6 billion euros, must be ratified by parliament, where no party has a majority. If it fails to do so, President Nicos Anastasiades has warned, Cyprus's two largest banks will collapse.

Regardless of how they change the levy parameters, the precedent is set.

Maybe it's 3% instead of 6.75%.

But maybe next time it's 10%.

Or 25%.

Or 50%.

Or 100%.