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In remarks at the University of San Diego, Federal Reserve Bank of San Francisco President Janet Yellen said that rather than experiencing a "V-shaped recovery," the economy will continue to be sluggish and won't be operating at its full potential until 2013. As reasons, she cited consumer anxiety due to the high unemployment rate; a housing sector that "could weaken again"; "very nervous and exceedingly cost-conscious" businesses; and a commercial real estate market that won't contribute to growth "for some time." For workers, though, her prognosis was particularly dire: the labor market will be slow to recover because businesses have learned that they can cut workers yet maintain output.

We know that the Obama administration will not go after the banksters that created this global financial calamity. It has been thoroughly co-opted by Wall Street's fifth column, who hold most of the important posts in the administration. Europe has even more at stake and has shown somewhat more willingness to take action. Perhaps our only hope for retribution lies there.

Some might believe the term "banksters" is too mean. Surely Wall Street was just doing its job -- providing the financial services wanted by the world. Yes, it all turned out a tad unfortunate but no one could have foreseen that so many of the financial innovations would turn into black swans. And hasn't Wall Street learned its lesson and changed its practices? Fat chance. We know from internal emails that everyone on Wall Street saw this coming -- indeed, they sold trash assets and placed bets that they would crater. The crisis was not a mistake -- it was the foregone conclusion. The FBI warned of an epidemic of fraud back in 2004 -- with 80% of the fraud on the part of lenders. As Bill Black has been warning since the days of the Saving and Loan crisis, the most devastating kind of fraud is the "control fraud," perpetrated by the financial institution's management. Wall Street is, and was, run by control frauds. Not only were they busy defrauding the borrowers, like Greece, but they were simultaneously defrauding the owners of the firms they ran. Now add to that list the taxpayers that bailed out the firms. And Goldman is front and center when it comes to bad apples. Lest anyone believe that Goldman's executives were somehow unaware of bad deals done by rogue traders, William Cohan reports that top management unloaded their Goldman stocks in March 2008 when Bear crashed, and again when Lehman collapsed in September 2008. Why? Quite simple: they knew the firm was full of toxic waste that it would not be able to continue to unload on suckers -- and the only protection it had came from AIG, which it knew to be a bad counterparty. Hence on March 19, Jack Levy (co-chair of M&As) sold over $5 million of Goldman's stock and bet against 60,000 more shares; Gerald Corrigan (former head of the NY Fed who was rewarded for that tenure with a position as managing director of Goldman) sold 15,000 shares in March; Jon Winkelried (Goldman's co-president) sold 20,000 shares. After the Lehman fiasco, Levy sold over $6 million of Goldman shares and Masanori Mochida (head of Goldman in Japan) sold $56 million worth. The bloodletting by top management only stopped when Goldman got Geithner's NYFed to produce a bail-out for AIG, which of course turned around and funneled government money to Goldman. With the government rescue, the control frauds decided it was safe to stop betting against their firm. So much for the "savvy businessmen" that President Obama believes to be in charge of Wall Street firms like Goldman.

From 2001 through November 2009 (note the date -- a full year after Lehman) Goldman created financial instruments to hide European government debt, for example through currency trades or by pushing debt into the future. But not only did Goldman and other financial firms help and encourage Greece to take on more debt, they also brokered credit default swaps on Greece's debt-making income on bets that Greece would default. No doubt they also took positions as the financial conditions deteriorated-betting on default and driving up CDS spreads. But it gets even worse: An article by the German newspaper, Handelsblatt, ("Die Fieberkurve der griechischen Schuldenkrise", Feb. 20, 2010) strongly indicates that AIG, everybody's favorite poster boy for financial deviancy, may have been the party which sold the credit default swaps on Greece (English translation here). Generally, speaking, these CDSs lead to credit downgrades by ratings agencies, which drive spreads higher. In other words, Wall Street, led here by Goldman and AIG, helped to create the debt, then helped to create the hysteria about possible defaults. As CDS prices rise and Greece's credit rating collapses, the interest rate it must pay on bonds rises-fueling a death spiral because it cannot cut spending or raise taxes sufficiently to reduce its deficit. Having been bailed out by the Obama Administration, Wall Street firms are already eyeing other victims (and for allowing these kinds of activities to continue, the US Treasury remains indirectly complicit, another good reason why one shouldn't expect any action coming out of Washington). Since the economic collapse is causing all Euronations to run larger budget deficits and at the same time is raising CDS prices and interest rates, it is easy to pick off nation after nation. This will not stop with Greece, so it is in the interest of Euroland to stop the vampires now. With Washington unlikely to do anything to constrain Goldman, it looks like the European Union, which is launching a major audit, just might banish the bank from dealing in government debt. The problem is that CDS markets are essentially unregulated so such a ban will not prevent Wall Street from bringing down more countries-because they do not have to hold debt in order to bet against it using CDSs. These kinds of derivatives have already brought down an entire continent -- Asia -- in the late 1990s , and yet authorities are still standing by and basically doing nothing when CDSs are being used again to speculatively attack Euroland. The absence of sanctions last year, when we had a chance to deal with this problem once and for all, has simply induced even more outrageous and fundamentally anti-social behavior. It has pitted neighbor against neighbor -- with, for example, Germany and Greece lobbing insults at one another (Greece has requested reparations for WWII damages; Germany has complained about subsidizing what it perceives to be excessive social spending in Greece). Of course, as far as Greece goes, the claim now is that these types of off balance sheet transactions in which Goldman and others engaged were not strictly "illegal" under EU law. But these are precisely the kinds of "shadow banking transactions" that almost brought down the global financial system 18 months ago. Literally a year after the Lehman bankruptcy -- MONTHS after Goldman itself was saved from total ruin, it was again engaging in these kinds of deals. And it wasn't exactly a low-level functionary or "rogue trader" who was carrying out these transactions on behalf of Goldman. Gary Cohn is Lloyd "We're doing God's work" Blankfein's number 2 man. So it's hard to believe that St. Lloyd did not sanction the activities as well in advance of collecting his "modest" $9m bonus for last year's work.

No silver bullets. This is the simple premise of Diane Ravitch’s new book, “The Death and Life of the Great American School System,” which is being brought out this week by Basic Books. Written by one of our nation’s most respected scholars, it has been eagerly awaited. But it has also been, at least in some quarters, anticipated with a certain foreboding, because it was likely to debunk much of the conventional — and some not so conventional — wisdom surrounding education reform. Click Image to Enlarge

What of the once-great comprehensive high schools, institutions with history and in some cases a track record of success going back generations? As time moves on, it is fast becoming clear that the new small schools, many with inane themes (how about the School of Peace and Diversity?), can never substitute for a good neighborhood high school, which can become a center of communal life and pride. Ms. Ravitch’s report underscores the fact that the trick is to fix the neighborhood schools beset with problems, not destroy them.

It is not only the foundations that Ms. Ravitch blames for the current crisis: government has also failed in the attempt to reform the schools from above, lacking a clear perspective of how schools work on a day-to-day basis. Thus, the major federal initiative, No Child Left Behind, well intentioned as it may have been, ended up damaging the quality of education, not improving it. While the federal government declares schools as “failing” and prescribes sanctions for schools not meeting its goal of “annual yearly progress,” it is the states that are allowed to write and administer the tests. This has led to a culture of ever easier tests and more test preparation rather than real instruction. More ominously, it led to such scandals as the New York State Education Department lowering the “cut scores” that define the line between passing and failing. Ms. Ravitch suggests that the proper roles of the states and federal government have been reversed under NCLB. Maybe the standards for achievement should be set in Washington, which, after all, administers the National Assessment of Educational Progress , and the solutions found at the local level, using the accurate data provided by Washington. Instead of moving in a different direction from the failed NCLB model of the Bush Administration, the Obama administration has adopted and expanded on them.

Reconciliation was created through the Budget Reform Act of 1974 in an effort to streamline the budget process, strengthen the ability of Congress to make tough decisions regarding deficits, and to make legislative decision-making more efficient. Congress quickly expanded on the types of measures that could be considered under reconciliation until 1985 and 1986, when the Senate passed rules proposed by Sen. Robert Byrd that limited what could or could not be included when using this process. Before moving forward, Democrats must consider two questions. The first is whether using reconciliation to pass health care is legitimate or an abuse of the process. Republicans have charged that this would be akin to forcing the program through the chamber rather than passing the bill through negotiation and compromise. On this question, the answer is easy. Reconciliation has been as much a part of the Senate in the past three decades as the filibuster. According to an article that was published in The New Republic, Congress passed 22 reconciliation bills between 1980 and 2008. Many important policy changes were enacted through this process, including the Children's Health Insurance Program, COBRA (which allows people who switch jobs to keep their health care), student aid reform, expansions in Medicaid and several major tax cuts. NPR's Julie Rovner reported that most of the health care reforms enacted in the past two decades have gone through reconciliation. President Ronald Reagan was one of the first presidents to make aggressive use of reconciliation when he pushed through his economic program in 1981. Senate Majority Leader Howard Baker said then that speed had been essential because "Every day that this is delayed makes it more difficult to pass. This is an extraordinary proposal, and these are extraordinary times." Presidents Jimmy Carter, George H.W. Bush, Bill Clinton and George W. Bush all used reconciliation as well. It is worth noting that these presidents, particularly George W. Bush, also made use of sweeping executive power to circumvent Congress altogether. The second question is more difficult and it involves perceptions. If the Democratic leadership wants to use this tactic, they have to convince enough members of their own party that this won't scare off independent voters. This argument was harder to make in 2009 than in 2010. But after a year of dealing with paralysis in the Senate and highly effective Republican obstruction, more Democrats are coming on board. The leadership must be proactive in responding to the criticism about reconciliation. They will have to explain that reconciliation is a legitimate process by pointing to the history. They will also have to connect the dots for voters frustrated with the ineffective government by explaining that the constant use of the filibuster has turned the Senate into a supermajority institution where both parties have found it extraordinarily difficult -- virtually impossible -- to pass major legislation.On this point, Republicans and Democrats actually agree. Indeed, as Democrats make this decision, Kentucky Republican Senator Jim Bunning is objecting to a unanimous consent order and single-handedly preventing the Senate from passing an important bill to assist unemployed workers.