Much the most interesting piece on the financial debacle that I have read recently concerns Citigroup and its predecessors link here. It turns out to have been a source of rot in the financial system since the 1920s before the Great Depression. Somehow it always escapes reform, has to be rescued, and comes back to rip us off again.

"During the 1920s, the institution then known as National City Bank opened stores around the country to encourage the burgeoning middle class to invest in stocks and bonds. With little money down 10 percent of the cost of a trade was all an investor needed to buy shares investors poured into the stock market."

"Before the crash, industry practice allowed National City not only to underwrite securities but also to employ a sales army to peddle them to depositors." One response was passage of "the Glass-Steagall Act, separating activities of commercial banks (which offered plain old savings accounts and loans) from those of investment firms." "Although thousands of smaller banks failed, government policies to prop up the banking sector helped National City and other major banks weather the Depression."

During the 90's bank crisis from lending to Latin America, the company (then known as Citigroup) was saved by weakened capital and accounting rules and by low interest rates created by the FED.

It and other banks then used their clout to get Glass Steagall repealed. "By liberating our financial companies from an antiquated regulatory structure, this legislation will unleash the creativity of our industry and insure our global competitiveness," Mr. Sanford I. Weill and Mr. John S. Reed, Citigroup's co-chairmen and co-chief executives, said in a statement after repeal. "As a result, all Americans investors, savers, insureds will be better served."

We all know what happened then. The bank's health remains precarious and largely dependent on the government guarantee. But it is still resisting reform and opposing moves to split up the too-big-to-fail banks.

Two news stories this week inform us just how fragile the financial system still is. The longest appeared in two parts in the Seattle Times and traces the demise of WaMu, a major mortgage lender that went broke last year link here and here. The other story concerns the re-emergence of Maurice Greenberg, the "financier" who built AIG, lost it in a bid for control several years ago, still owns a lot of its stock, and is now fashioning a competitor, C V Starr, which apparently replicates AIG in its activities, in its style and its complex organization designed to obscure what is happening, and is now acquiring many former AIG employees link here.

The WaMu story shows how it went from profitable but healthy mortgage lending to increasingly risky subprime high interest paper that was sold by agents and approved with increasingly lax WaMu reviews. Recognizing that the profits depended on ever-rising real estate prices, WaMu moved to dump its own holdings of these mortgages through securitization but got caught with billions in mortgages it couldn't unload in 2007 when that market froze up in recognition of how poor these securities were.

The worrisome aspect of both these stories is that the financial regulators were oblivious of what was happening and that nothing has yet been done to prevent it from happening again. Read these stories and beware.

The most important decision on financial reform seems to have been made by the Administration: to reject Volcker's lead on financial reform to reinstall the wall between commercial and investment banks and repeal the implicit government guarantee to the investment bank lenders link here. Rather Obama chose to follow that of Summers-Geithner-Bernanke (christened the "Summersists", as opposed to the "Volckerists"), to leave the banks big but try to regulate their behavior. This might be the right choice, in order to get it through Congress, but the banks seem happy, apparently in the belief that they can get what they want. Why do I feel that they are right?

Felix Salmon raises questions about write downs in banks' valuation of mortgage servicing rights which give banks a steady income and which they have capitalized on their balance sheets link here. Presumeably, they bought these from mortgage lenders and mortgage derivative creators, but there is no current market price for them so holders can play games with the carrying value on their books. Their value will vary if mortgages are paid off early, ending the service income but also with interest rates on alternative investments. This is another aspect of the enigma that is investment banking. Why should the government guarantee lenders to banks which hold this kind of investment?

Another aspect of the financial crisis was the bailout of Chrysler and GM. Steven Rattner, the car czar or chairman of the President's Automobile Task Force is on the record with a report, an article in Fortune, and a persuasive interview on PBS link here. An aspect of this is that top executive salaries are being imposed by the salary czar on seven companies, two of which are the financings arms of the car companies--so the executive salaries of just three banks are being limited, though taxpayers have bailed out the whole industry. Big deal.

Felix Salmon has another heads up, this one on the hedge fund activities of John W Merriweather, a founder of bankrupted Long Term Capital Management and now of JWM Partners link here. Salmon notes that partner fees end when the fund no longer beats its previous high. Time to close the fund and start a new one with a lower payoff marker. Interesting incentives Wall Street sets for itself.

You can read another chapter of ANDREW ROSS SORKIN's book, Too Big to Fail, this time on The Race to Save Lehman Brothers link here. Bottom line: it was chaos and bankers and officials were talking to each other in terms that would normally have gotten them in trouble with the feds.

A useful fact on which to end: A study found that securitized mortgages were five times as likely to be delinquent as mortgages that were not resold to securitizers link here.

The media are really covering the financial crisis as each day brings more revelations. Start today with Louis Uchitelle on Obama advisor Paul Volcker who wants to redivide commercial and investment banking with the latter no longer enjoying a government guarantee but who has been kept out of the decision making link here. Then go link here to watch how the Commodity Futures Trading Commission [CFTC] was on to the "dark" market in derivatives as a bomb waiting to blow but was blocked in its attempts to gather information on what was happening.

Finally, Felix Salmon directs us link here to Andrew Ross Sorkin's new book, Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System---and Themselves, which breaks some pretty stunning news, dating from the end of June, 2008. At that point, it was still months before the now-famous but then-secret waiver, issued in mid-September, which allowed Treasury Secretary Hank Paulson to talk to Goldman Sachs; he'd promised not to do that when he moved from Goldman to Treasury but he did it anyway.

A major feature of all these is the cast of characters, starting with Alan Greenspan, hired by Reagan and kept on by Bush 1, Clinton, and Bush 2, and self-described as a "strong" libertarian and free market ideologue of the Ayn Rand school. Then there is Robert Rubin as Treasury secretary, and his minions, Tim Geithner and Larry Summers, most recently joined by FED chairman Bernanke. They and Wall Street are still running things.

Most people are libertarian in some aspects of their political beliefs, but the belief that government is always bad and that markets will take care of, for example, our foreign policy challenges is stretching and has brought us to where we are now.

There hasn't been much on the rating agencies role in the financial disaster last year, but there is now link here. Details on the failures of Moody's, S&P, and with a little about Fitch are now available via Kevin G. Hall from McClatchy Newspapers.

I won't repeat it all because the article is long and full of persuasive detail. Despite protestations that all has been corrected, anyone who trusts their ratings would be a fool in the absence of a showing of major reform.

Several commentators have said the raters were culpable, but did not have major responsibility for the massive financial fraud that took place. That conclusion is very hard to accept. Without their active collaboration, the bubble could not have occurred.

Have we seen anything yet to suggest that this will now change?

The power of big business was once again illustrated in several stories this week. Two stood out. The first reported the ability of the three big banks to talk to the Secretary of Treasury in the midst of the financial crisis link here. Another was their ability to ignore public opinion and do little or nothing when pressed by the Congress to modify mortgages to help out beleaguered home owners avoid foreclosure or to meliorate the financial crisis. One respondent was Congresswoman Marcy Kaptur (D-OH) and the other was economist Simon Johnson link here. The bottom line of that story was that the moment to reform our financial system had past and now would not happen. The banks were making money and were happy with things as they are. To paraphrase the words of Rahm Emanuel, the good, the crisis had been wasted.

The proposed Google book scanning deal has provoked a great deal of opposition. Google co-founder SERGEY BRIN, defends it link here. He makes a reasonable set of points:

"This agreement aims to make millions of out-of-print but in-copyright books available either for a fee or for free with ad support, with the majority of the revenue flowing back to the rights holders, be they authors or publishers."

"...rights holders can at any time set pricing and access rights for their works or withdraw them from Google Books altogether."

"For those books whose rights holders have not yet come forward, reasonable default pricing and access policies are assumed. This allows access to the many orphan works whose owners have not yet been found and accumulates revenue for the rights holders, giving them an incentive to step forward."

"...nothing in this agreement precludes any other company or organization from pursuing their own similar effort. nothing in this agreement precludes any other company or organization from pursuing their own similar effort."

I remain most concerned about the lack of present competition. But I remind myself that possible future competitors can come forth should Google et al price themselves too richly.

In the meantime, getting a deal that makes the books available is the critical point. Brin reminds us that even library books don't survive fire and flood.

Opponents of copyright will remain opposed on principle. That strikes me as quixotic, even as I agree in principle.

Sandra G. Boodman of Kaiser Health News as reported in the Washington Post describes the imposition of additional medical charges for what is vaguely described as facilities fees link here. It looks like fees on anything for which health care providers can find a justification. The examples are large and growing.

The breakthrough occurred some years back when the providers got medicare rules changed to allow it. Boodman writes, "patients increasingly are being charged the fees, the result of an obscure change in Medicare rules that occurred nearly a decade ago. Called "provider-based billing," it allows hospitals that own physician practices and outpatient clinics that meet certain federal requirements to bill separately for the facility as well as for physician services. Because hospitals that bill Medicare beneficiaries this way must do so for all other patients, facility fees affect patients of all ages. Doctors' offices owned by physicians and freestanding clinics are not permitted to charge them."

Boodman has lots of examples, but I haven't been able yet to find out how this got lobbied through the bureaucracy.

On the capture of the medical "business" by the medical "interests," you can see a short video version on Bill Moyer's Journal here Or read Maggie Mahar'S book Money-Driven Medicine: The Real Reason Health Care Costs So Much

Michael Helft writes in the NYTimes to update the status of the Google book scanning project. The longer it has been pending, the more the objections, now in the hundreds, and the greater the messiness of any settlement link here.

The two great public goals of the settlement are being largely forgotten in the squabble over who gets what from the deal. Those goals are obvious--making so many books searchable on line and available to all at a reasonable price.

The orphan-books issue is a legalism, as they have been of no interest to the owners for years, not even enough for them to come forth and assert a claim. Why owners ever have any interest in orphan works remains a mystery; they are nothing more than abandoned books and properly public property.

In this respect, the proposed settlement gives a wide group a vested interest in the money to be generated by the settlement, for which they have done nothing.

The settlement also creates an effective monopoly on sale of the books, not as a matter of law but as the practical outcome since Google has already paid the sunk costs of scanning the books and putting them on line.

Art Brodsky of Public Knowledge has a really persuasive interview with cartoonist/short firm maker Nina Paley on the costs of making an independent firm on songs (with cartoons added) ostensibly out of copyright but for many purposes, still in link here. It is 20 minutes long, so be prepared to pay attention. But it really is riveting to see all she had to go through and the costs, in money and time. If you think copyright is great, this should persuade you that it is a curse, a blight on creativity, and a robbery of the public. She is a great respondent.