Tuesday, November 30, 2010

Soothing Books

Every Thursday a thoughtful blog voice publishes an essay discussing the future we might soon be facing, and in tones not alarmist but alarmed, offers sensible suggestions on how to try to cope. The ideas espoused are worth reading not least because they are rational calm and sensible presented as "Green Wizardry" a form of home economics, small agriculture and useful skill building that might help anyone deal with a period of economic decline that appears to be inevitable for all of us. Along with practical advice the Archdruid offers philosophical suggestions about learning to cope with decline. This past week http://thearchdruidreport.blogspot.com/ was talking about the snake oil solutions offered by authors who like to sell books offering hope to the fearful. The Archdruid received one such book.

I’m not going to name the author, the publisher, or even the subject matter, because it could have been any of a hundred books; these days they’re as interchangeable, as forgettable, and as inescapable as American politicians at election time. I’m not sure why it was mailed to me, as it came unannounced; I have to assume that since I blog about the crisis of industrial society, and this book claims to offer a solution to that crisis, the author or the publisher’s marketing department decided that I probably ought to know about it.

You already know the kind of book I’m discussing. It begins with several chapters of potted history that combines an overheated version of the mess we’re in – slanted, naturally, toward those aspects of the mess that the proposed solution is supposed to solve – and an equally colorful account of the prehistory of the solution that traces it back to an exotic and currently fashionable source. It goes on to talk about the proposed solution with the kind of overhyped enthusiasm and rose-tinted assumptions more often associated with the press releases of small tech startups that will be bankrupt within the year. It spares a brief chapter or two to mention criticisms directed at the proposed solution in order to dismiss them out of hand, and then finishes up with a vision of the glorious Utopian future that awaits once the Party’s latest five year plan – er, excuse me, once the proposed solution gets the universal acceptance and ample funding the author hopes to attract.

What isn’t in books of this kind is as important, and as worth mentioning, as what is in them. You won’t find any substantive discussion of the limits of the proposed solution – what dimensions of the crisis of industrial civilization it can’t solve, which bioregions or human societies can’t use it effectively, what resource requirements, environmental effect, or economic factors place constraints on its use, and so on. You won’t find any substantive discussion of the downside of the proposed solution – what burdens it will place on already stressed resource supplies, ecosystems, or economies. Equally, you won’t find meaningful comparisons between the proposed solution and other ways of accomplishing the same thing. Since there are always limits, costs, and alternatives, and a reasoned approach to any kind of decision needs to take these three things into account, their exclusion from such books is not exactly a minor point.

Still, there’s another factor left out in the sort of book I’m discussing: there’s nothing the reader is supposed to do in response. Until recently, if you picked up a book that took some current crisis, painted it in the most apocalyptic terms available, then trotted out some solution dolled up in glowing colors for your approbation, you could safely bet any sum you like to name that the final chapters would try to sell the reader on a product to buy, a service to pay for, a movement to join, or something similar. That sort of snake oil sales pitch is as old as the hills of Iowa and twice as corny, but at least it’s relatively straightforward.

The books I have in mind are anything but straightforward. Like the sales pitches just mentioned, they work overtime making whatever crisis concerns their authors look as dire as possible, and gild their proposed solutions with a glitter of infallibility as glorious as anything a carnival pitchman ever claimed for Doctor Fox’s Genuine Arkansas Snake Oil, but they’re not written to sell. It finally occurred to me, while reading the example mentioned earlier in this essay, what their actual purpose is: they’re written to soothe.

This sort of lullaby literature is very popular just now. Shorter pieces humming the same tunes can be found all through what passes for news media in America these days. The New York Times is particularly fond of such things; my adopted kid sister Sharon Astyk neatly eviscerated one example from that source in a recent blog post, but it’s a safe bet that neither the author nor the intended audience of the piece will notice. They are paying attention to something else.

Especially but not only in America, an awareness is spreading through the crawlspaces of society that the current round of troubles might not just be a speedbump on the road to the shiny future our society’s myths promise us. The sense that something has truly, deeply, desperately gone wrong, right down at the core of the world we’ve created for ourselves, has made itself the background to most of the collective conversations that define our culture. The popularity of soothing narratives about the future just now is, if anything, a marker for just how pervasive that background has become; it’s only when fears are inescapable that efforts at mass reassurance find a market.

Still, there’s another dimension to all this, and it bears directly on the Green Wizards project. One of the things that makes our predicament so difficult for so many people to face just now, and especially for so many Americans, is that every available option for the future includes the certainty of massive impoverishment. The five per cent of us who live in the United States have gotten used to living on a quarter of the world’s energy supply and around a third of its raw materials and industrial products. Even if the world wasn’t facing the rapid depletion of its readily accessible fossil fuel reserves, the equally rapid depletion of many other nonrenewable resources essential to the economy, a global climate tipping toward critical instabilities, a dizzying array of local, regional, and global ecological shifts, and the inevitable feedback loops and synergistic effects these changes are going to cause – and of course the world is facing all these things, and will be facing more of them with every passing year – even if these things weren’t happening, the arrangements that provide Americans with so huge a share of the world’s resources are not going to last much longer.

Those arrangements were the product of a particular set of historical conditions. A century ago, those conditions didn’t exist; back then, it was Britain that received a disproportionate share of the world’s wealth, as the beneficiary of an imperial system that directly ruled a quarter of the world’s land surface and also dominated the world’s oceans and, by that fact, most of its international trade. America in those days was a rising power, to be sure, but wasn’t even close to the world’s biggest economy; it had to shelter its industries from the impact of the British colossus by exactly the sort of trade barriers the Chinese are using against us today. (Yes, British economists criticized the US in much the same terms our economists now use to denounce the Chinese; we didn’t listen and neither will they.)

It didn’t take a hundred years for the British empire to be replaced by ours, and it won’t take a hundred years for ours to be replaced by someone else’s. Since we can’t rely on the unusual historical circumstances that allowed Britain to maintain a few shreds of its imperial dignity and some of its privileged economic standing – they were basically able to rent their island out to the American military as an unusually large aircraft carrier conveniently anchored right off the shores of Europe; we don’t have that geopolitical advantage – the aftermath of the American empire is almost certain to be much more like the aftermath of most other empires: economic collapse, massive political dislocations, and a long period of turmoil and contraction until the bottom is reached and recovery can finally start to take shape. The global empire that preceded Britain’s, the Spanish Empire, may provide a more accurate model: that empire imploded in the early nineteenth century in the wake of Britain’s rise to global power, and it wasn’t until the late twentieth century that Spain finally managed to pull itself out of the long nightmare of impoverishment and political chaos that followed.

Again, this is what we would be able to expect if the global economy was entirely based on sustainable resources and the global ecology wasn’t redefining itself in the face of a couple of centuries of fossil fuel-powered abuse. Factor in the impact of energy and resource depletion, climate change, and environmental instability, and the very high likelihood of an increasingly desperate and violent scramble for remaining resources on the way down, and the effects of the end of American empire are likely to be more drastic than anything we’ve seen in the western world since the fall of Rome.

I suspect most Americans these days know this, or at least sense it. These days, when I give a talk on the future to an audience outside the peak oil community, I can begin it like this – “Remember all those scientists a few decades back who warned that if we didn’t make some drastic changes in the very near future, we’d be in deep trouble in the early twenty-first century? Well, guess what.” – and far more often than not, nobody argues. Some of them, at least to judge by the comments and questions I field, are already beginning to try to fit their minds around a future in which nearly all of us are desperately poor by today’s standards; many more are hoping that the worst of it will miss them somehow, or that they’ll be lucky enough to die before it hits – I’ve had people, not all of them elderly, express this latter hope to me in so many words.

Even among those who insist that it won’t happen – those who claim that the center of the Earth really is full of limitless oceans of oil, or that holding hands in a circle and singing “Kum Ba Ya” is a viable strategy for an age of imperial decline and global overshoot, or that the Rapture or the Singularity or 2012 or some other deus ex machina will annihilate history and save them from the future – I have to question how many people actually believe what they claim to believe. I know far too many people who insist the world will end in 2012, for example, who are still putting money into their retirement accounts, and it’s been an open secret for the last decade that the vast majority of people who like to imagine living in a lifeboat ecovillage have not been willing to lift a finger or spend a dime to bring such a project into being.

I’d like to suggest that this is because daydreams about nonexistent lifeboat ecovillages and planet-ending catastrophes two years from now that weren’t actually predicted by the ancient Mayans at all share a common purpose, one that’s also shared by abiotic oil, fusion power, and a dime store’s worth of other lullabies disguised as solutions. Their purpose is to give people something more pleasant to think about than the future that’s breathing down our necks. Yes, planet-ending catastrophes are more pleasant to think about than a couple of centuries of ragged decline, impoverishment, and population loss; if we all get blown to kingdom come in one vast fireball, at least it’s over quickly, and you can probably get some consolation in the few seconds before you’re vaporized by reminding yourself that, after all, it wasn’t your fault.

The irony here, and it’s a rich one, is that potentially workable projects can be turned into lullabies just as effectively as the most dubious daydream. I’m not exactly a fan of the lifeboat ecovillage concept, but it’s always possible that one or more of the handful of voluntary communities that have adopted this role might turn out to have had the right idea all along; it’s the ones that haven’t been built, will never be built, and function primarily as lullaby fodder that are guaranteed to be useless. Equally, some of the other approaches that have become the focus of soothing pronouncements that the solution has been found might actually do some good – and in some cases, quite a bit of good – if they’re treated as projects needing immediate hard work by anyone who wants to see them happen, rather than as props for the fantasy that somebody else is going to do everything that’s necessary.

Green wizardry is vulnerable to exactly the same process. That’s one reason why I don’t intend to present a nice neat all-encompassing plan for saving the world in these essays, or the book for which they form the very rough initial draft. Green wizardry can’t save the world, if by “saving the world” is meant finding some way to allow Americans to keep on living some semblance of a lifestyle that requires a third of the world’s economic activity to support it; but it won’t even accomplish those modest but useful tasks that it could potentially do if it gets treated primarily as raw material for lullabies.

We don’t have time for lullabies. With the United States government openly covering its debts by printing money, food and commodity prices spiking, the number of permanently unemployed people soaring across the industrial world, and China cutting deals with its other major trading partners to price goods and handle exchanges in yuan and local currencies rather than dollars, we face a high risk of serious discontinuities in the relatively near future. That’s why I hope to goad those people already involved in the Green Wizards project to get going; it may be winter here in the northern hemisphere, but that’s a good time to plan those garden beds, order seeds, keep the compost going, and put some tools on the list of holiday presents.

Monday, November 29, 2010

Class Warfare

The New York Times' Bob Herbert brings up the class war underway in the US but shrinks from the complete story, as only the New York Times can. The moneyed class in the US has, through globalization, discovered it no longer neeeds US workers or "consumers." The people who own the means of production have moved production offshore into countries where costs are cheaper and riots do not impinge directly on the lives of the elite. It no longer matters to the people in charge what becomes of us, we represent a burden with no return on investment. That's the real class war that Herbert alludes to but skirts in his essay:

The class war that no one wants to talk about continues unabated.

Even as millions of out-of-work and otherwise struggling Americans are tightening their belts for the holidays, the nation’s elite are lacing up their dancing shoes and partying like royalty as the millions and billions keep rolling in.

Recessions are for the little people, not for the corporate chiefs and the titans of Wall Street who are at the heart of the American aristocracy. They have waged economic warfare against everybody else and are winning big time.

The ranks of the poor may be swelling and families forced out of their foreclosed homes may be enduring a nightmarish holiday season, but American companies have just experienced their most profitable quarter ever. As The Times reported this week, U.S. firms earned profits at an annual rate of $1.659 trillion in the third quarter — the highest total since the government began keeping track more than six decades ago.

The corporate fat cats are becoming alarmingly rotund. Their profits have surged over the past seven quarters at a pace that is among the fastest ever seen, and they can barely contain their glee. On the same day that The Times ran its article about the third-quarter surge in profits, it ran a piece on the front page that carried the headline: “With a Swagger, Wallets Out, Wall Street Dares to Celebrate.”

Anyone who thinks there is something beneficial in this vast disconnect between the fortunes of the American elite and those of the struggling masses is just silly. It’s not even good for the elite.

There is no way to bring America’s consumer economy back to robust health if unemployment is chronically high, wages remain stagnant and the jobs that are created are poor ones. Without ordinary Americans spending their earnings from good jobs, any hope of a meaningful, long-term recovery is doomed.

Beyond that, extreme economic inequality is a recipe for social instability. Families on the wrong side of the divide find themselves under increasing pressure to just hold things together: to find the money to pay rent or the mortgage, to fend off bill collectors, to cope with illness and emergencies, and deal with the daily doses of extreme anxiety.

Societal conflicts metastasize as resentments fester and scapegoats are sought. Demagogues inevitably emerge to feast on the poisonous stew of such an environment. The rich may think that the public won’t ever turn against them. But to hold that belief, you have to ignore the turbulent history of the 1930s.

A stark example of the potential for real conflict is being played out in New York City, where the multibillionaire mayor, Michael Bloomberg, has selected a glittering example of the American aristocracy to be the city’s schools chancellor. Cathleen Black, chairwoman of Hearst Magazines, has a reputation as a crackerjack corporate executive but absolutely no background in education.

Ms. Black travels in the rarefied environs of the very rich. Her own children went to private boarding schools. She owns a penthouse on Park Avenue and a $4 million home in Southampton. She was able to loan a $47,600 Bulgari bracelet to a museum for an exhibit showing off the baubles of the city’s most successful women.

Ms. Black will be peering across an almost unbridgeable gap between her and the largely poor and working-class parents and students she will be expected to serve. Worse, Mr. Bloomberg, heralding Ms. Black as a “superstar manager,” has made it clear that because of budget shortfalls she will be focused on managing cutbacks to the school system.

So here we have the billionaire and the millionaire telling the poor and the struggling — the little people — that they will just have to make do with less. You can almost feel the bitterness rising.

Extreme inequality is already contributing mightily to political and other forms of polarization in the U.S. And it is a major force undermining the idea that as citizens we should try to face the nation’s problems, economic and otherwise, in a reasonably united fashion. When so many people are tumbling toward the bottom, the tendency is to fight among each other for increasingly scarce resources.

What’s really needed is for working Americans to form alliances and try, in a spirit of good will, to work out equitable solutions to the myriad problems facing so many ordinary individuals and families. Strong leaders are needed to develop such alliances and fight back against the forces that nearly destroyed the economy and have left working Americans in the lurch.

Aristocrats were supposed to be anathema to Americans. Now, while much of the rest of the nation is suffering, they are the only ones who can afford to smile.

Sunday, November 28, 2010

Memo To Ireland

A couple of things strike me about this essay: one that it came originally from my left wing favourite Counterpunch and was reproduced at zero hedge, not exactly a bastion of left wing thought. Second that suggesting that banks are being bailed by government lackeys is a belief held only by bloggers and marginal news outlets. The mainstream press absolutely refuses to get involved in this issue. Thus the notion that perhaps free markets should be allowed to let investors eat their losses themselves never gets an airing. We the people just keep on bailing out banksters. Bummer.
By MIKE WHITNEY, originally published at CounterPunch

Imagine that Yasser Arafat had succeeded in ending Israeli occupation and establishing a Palestinian state in the West Bank and Gaza. Now imagine that 10 or 15 years later, new Palestinian president, Mahmoud Abbas, agreed to hand over control of his country's budget to the IMF so his people's future would be controlled by outsiders. Do you think Palestinians would praise Abbas as a patriot or denounce him as a traitor?

Irish Prime Minister Brian Cowen is Mahmoud Abbas. He's caved in to the demands of foreign capital and transferred control over the nation's budget to the EU and the IMF. Here's an excerpt from a November 24, article in Reuters:

"Ireland's teetering government will announce plans on Wednesday to cut welfare spending sharply and raise taxes to help pay for the country's catastrophic banking crisis and meet the terms of an international bailout.

The four-year plan to save 15 billion euros is a condition for an EU/IMF rescue under negotiation for a country long feted as a model of economic development that has become the latest casualty in the euro zone's emergency ward.

Prime Minister Brian Cowen told parliament no final figure had been agreed for financial assistance, "but an amount of the order of 85 billion (euros) has been discussed.

The finance ministry said the austerity plan would be published at 1400 GMT and posted on the official government website." (Reuters)

This is a black day for Ireland. The Irish people will now face a decade or more of grinding poverty and depression thanks to their venal leaders. As soon as the ink dries on the IMF loans, the second occupation of Ireland will begin, only this time there won't be armored cars and Paramilitaries in fatigues, but nerdy-looking bureaucrats trained in the art of spreading misery. In fact, the loans haven't even been signed yet, and already IMF officials are urging the government to cut jobless benefits and the minimum wage. They're literally champing at the bit. They just can't wait to get their hands on the budget and start slashing away.

And don't believe the hype about European unity or saving Ireland. My ass. This is about bailing out the banks. The bondholders get a free ride while workers get kicked to the curb. Here's a clip from the Financial Times that spells it out in black and white:

"According to data compiled by the Bank of International Settlements, the three largest creditors to the Irish economy at the end of June...were Germany to the tune of €109bn, the UK at €100bn and France at €40bn. These sums amount to 2 per cent of France’s gross domestic product, 4.5 per cent of Germany’s GDP, and 7 per cent of British GDP."

See? Another bank bailout. Ireland is being asked to cut to social services, slash wages, renegotiate contracts, and dismantle the welfare state so that undercapitalized banks in France and Germany can get their pound of flesh. But, why? They're the ones who bought the bonds. No one put a gun to their head. They knew they could lose money if Irish banks went south. That's the risk they took. "You pays your money, and you takes your chances." Right? That's how capitalism works.

Not any more, it doesn't. Not while Cowen's in charge, at least. The Irish PM has decided to bail them out; make all the bondholders "whole again." But who made Cowen God? Who gave Cowen the right to hand over his country to the IMF?

No one. Cowen is a rogue agent kowtowing to international capital. After he finishes his work in Ireland, he'll probably join globalist Tony Blair on the French Riviera for a little hobnobbing with the tuxedo crowd.

It's revealing to watch the way Cowen works, as though the interests of foreign bankers mean more to him than those of his own people. For example, the Green Party withdrew from the government last night calling for new elections, but even though the government is in a shambles, the slippery Taoiseach wants to stay in power long enough to push through a new 4-year budget that will leave Irish workers on the brink of destitution. Who is Cowen working for anyway?

This is from the Irish Times:

"Opposition parties have today stepped up pressure on the Government as it seeks to push ahead with passing next month's budget.

Fine Gael again called for an immediate general election and said the four-year budgetary plan should only be implemented by a Government which has a proper mandate....

"What is best for the country is that the negotiation about a programme for four years be done by a government which has four years to serve, that has a mandate from the public so that it has the authority and the credibility to not only develop and negotiate it but to implement it. I think that is in Ireland's best interest," he said. ("Opposition steps up pressure", Charlie Taylor, Irish Times)

The prospective belt-tightening measures will include the firing of 28,000 public employees, a boost in property taxes, a 10 percent cut in welfare benefits, and higher taxes on low-wage workers. Cowen believes that taxing low income families is preferable to making billionaire bondholders eat their losses. The whole thing stinks to high-heaven.

Is there a way out for Ireland? Economist Mark Weisbrot thinks so. Here's what he thinks should happen:

"The European authorities and IMF can loan Ireland any funds needed in the next year or two at very low interest rates....Once these borrowing needs are guaranteed, Ireland would not have to worry about spikes in its borrowing costs like the one that provoked the current crisis....The European authorities could scrap their pro-cyclical conditions and, instead, allow for Ireland to undertake a temporary fiscal stimulus to get their economy growing again. That is the most feasible, practical alternative to continued recession.

Instead, the European authorities are trying what the IMF... calls an "internal devaluation". This is a process of shrinking the economy and creating so much unemployment that wages fall dramatically, and the Irish economy becomes more competitive internationally on the basis of lower unit labour costs."

It's all de rigeur for the IMF. It wouldn't be an IMF program unless someone was starving. That's the benchmark for success.

Ireland doesn't need structural adjustment programs that shrink GDP, dismantle popular social programs and strip wealth from workers when low interest funding and fiscal stimulus can bring the economy back to life. This is politics not economics. The EU and IMF are using the crisis to push through their own agenda. Their real goal is to crush the unions, shred the social safety net, and roll back the gains of the Progressive Era.

The Irish people are left with no choice but to resist. Presently the Cowen government is collapsing. Bravo. Now it's off to the barricades to see if the damage can be undone. Ireland needs to withdraw from the EU and start fresh. It'll be a bumpy road at first, but there's no other way. Economist Dean Baker sums it up like this in an article in The Guardian. Here's what he said:

"Even a relatively small country like Ireland has options. Specifically, they could drop out of the euro and default on their debt....Like Ireland, Argentina had also been a poster child of the neoliberal crew before it ran into difficulties.

But the IMF can turn quickly. Its austerity programme lowered GDP by almost 10% and pushed the unemployment rate well into the double digits. By the end of the 2001, it was politically impossible for the Argentine government to agree to more austerity. As a result, it broke the supposedly unbreakable link between its currency and the dollar and defaulted on its debt.

The immediate effect was to make the economy worse, but by the second half of 2002, the economy was again growing. This was the start of five and a half years of solid growth, until the world economic crisis eventually took its toll in 2009."

The Irish people didn't struggle through centuries of famine and foreign occupation so they could be debt-peons in the EU's corporate Uberstate. Like Sinn Fein president Gerry Adams said, "We don't need anyone coming in to run the place for us. We can run it ourselves." Right. Tell the EU plutocrats to take their Utopian Bankstate and shove it.

Friday, November 26, 2010

Paying For Banks

From The Automatic Earth website. What aggravates me is that the mainstream hasn't yet added up the dots of all these bailouts to show that we the people are being impoverished to pay off private bank debt. As usual it's socialism for the rich and free market starvation for everyone else. And no one in the US seems to get it. We watch the protests in Europe (if we notice them at all) with detached bemusement as though they, and their problems, have nothing to do with us. Granted protesting in the streets won't stop the rape but an expression of disgust or anger is better than simply sitting on one's hands. Let's not forget the austerity imposed over there will be imposed over here, in the country with virtually no safety net. Imagine an announcement in any European state that the government might not continue unemployment benefits...The protests would be astonishing. Here? Not a word raised in anger. And we continue not to protest in any fashion the transfer of debt from the banks to the government.

Funny to see that nobody talks about California or Illinois for a while, as Angela Merkel has grabbed the international media headlines with her solid bid to bring down the euro vs the USD through a series of carefully planned rumors and the stand and/or deliver execution of Ireland. It doesn't look like what happens in Ireland could have been avoided, the place looks more like Iceland every day, but you still feel to feel for the Irish people. Word is that the total bailout costs are moving towards the €200 billion level (their budget cuts are €15 billion), and that's for a country of 4.5 million souls.

Well, at least they won’t be alone in that predicament much longer. As in when California and Illinois will be in the spotlight again. Or Spain, which some have apparently suddenly figured out is also still as doomed as it always was. It’s not a bad thing to follow the news and fads of the day, but it's still not very wise to lose track of the underlying theme: no matter what bailouts and stimuli are concocted by those wishing to hang on to their seats and fat wallets, more debt doesn’t solve debt problems. Debt always has to be paid down, restructured or solved through some combination of the two. For now, the negatives of both options are laid squarely on the shoulders of the people of the various afflicted nations, instead of on those of the folks who incurred the debt. It seems unlikely that this will continue much longer.

Surely, there must be one nation where enough voices can come together to say: no mas?! So far, little action. Protests in Britain, Ireland, Portugal, but nothing anywhere near massive. Nothing that even seriously disrupts an economy or society.I saw some footage early this morning on BBC that sort of says it all. The news presenters compared the student protest marches outside yesterday with those inside, some sort of sit-down. The latter were praised for being peaceful, the former derided for being violent. Which they weren’t really, there were just the odd few token people who threw stuff, a few among many thousands who just marched. And those few could easily have been paid to throw that stuff by the government. The message being that both the BBC and the government had rather see you sit in a room than march on a street. Much easier to control.

As long as we don’t escape that sort of controlled environment, nothing will happen. It’s all about the difference between a financial crisis, which most people continue to believe this is, and a political one, which it actually is. This crisis is entirely political because, for instance, politicians don’t protect their electorate from predatory institutions and practices. Because those predators are the ones who have the real political power (re: campaign finance). Because, see Ireland, banks and their stockholders are still being made whole on their losses, without restructuring, without haircuts, at the cost of the people. Who still have no clue what is going on. It would be a good thing if that would change. A very good thing. For you. For your children.

Where do you think the €100 billion or so -or more- involved in the Irish bailout ends up? This money is used to pay off the gambling debt of Irish bankers to global banks, to Deutsche, Société Générale, and eventually to the same Goldman Sachs and JPMorgan that are in the center of all these miserable stories all over the globe. That is what has to stop. And until that happens, it makes no difference who you vote for in your elections, no matter where you are.

And if anyone tells you it’ll all be alright, you just ask them what they suggest we do with the debt. Shoveling more and more into your own kids' graves doesn’t sound like a great idea, so why do you do it?. You’re not going to change this one with a sit-down protest.

Thursday, November 18, 2010

The National Debt

"I am curious about your or others reaction to the initial recommendations of the Debt Commission. Seems like a common sense plan to get out of our predicament. If both the far right and far left are opposed it must be a solution to consider." A recent comment on this blog.


I have been listening to people complaining about out of control government spending for thirty years, at least. Every election cycle candidates announce they are in favor of reducing "out of control" government spending. You can study the federal budget in depth but looking at a broad view of the 3.5 trillion dollar annual budget these are the principal outlays:

$687 billion - Social Security
$655 billion – Defense
$564 billion – Unemployment and Welfare Payments
$448 billion – Medicare
$287 billion – Medicaid
$162 billion – Debt service

Which amounts to about 2.8 trillion and none of it can be touched to work the magic required to reduce the budget deficit. At least not so far as demonstrated by decades of promising to reduce federal spending and nothing getting done by either party.

The national debt problem is a can that politicians kick down the road because it doesn't seem real or urgent as long as printing money deals with the immediate debt servicing requirements. I noticed recently that Great Britain, a country embarked on severe debt reduction has offered billions to help Ireland cope temporarily with it's own overwhelming debt load. So, I ask myself, how is that possible? A country coping with riots protests and widespread anxiety over cuts at all levels can turn around and say it has money to spare to pass along to a distressed neighbor? I would be outraged were I living in England.

In rather the same manner I have found that when I have been at my poorest as a young man, those were the times when I tended to be the most spendthrift. It was almost as though one had to keep up appearances, or perhaps as though a little more debt hardly mattered considering how poor one was to begin with...

The debt problem in the United States reflects this same attitude. We have politicians advising us we need to reduce the national debt load and at the same time they push for tax cuts, seeking immediate gratification. There are threats made all the time to cut social service spending yet we continue to fund impossible wars overseas to no visible end. All of which leads me to think that talk of debt reduction is simply a way to carry out social engineering.

Ronald Reagan's plan was simply put to cut social spending by forcing the national debt ever higher, but the plan backfired because of the national tolerance for debt. owning your own currency and the printing press that manufacturers it gives a country a certain latitude. Now however we find the national debt to be growing at a crazy rate and yet tax cuts are still the order of the day.

I have a colleague whose entrepreneurial efforts two decades ago produced a large debt. Now, by dint of huge amounts of overtime and dedication to dealing with this problem my colleague has come within months of paying off everything he has owed for years. He didn't do it by cutting back his income, he did it by increasing his income. Likewise we need to have a serious national debate about increasing the national income to pay down some debt. That or we declare bankruptcy, cut off international trade and start figuring out how we ourselves make what we need.

In my estimation some external crisis will need to manifest itself before we figure out how to deal with our national debt, if we even can at this late stage. I see no national will to do anything about it other than wring our collective hands and make pious noises about "sacrifice" and "hard work" and so forth. An external crisis might be China expanding the role of the yuan in international trade, similar to the deal they have worked out with Russia to trade not using the dollar. Perhaps oil will rise in price too high to sustain our economy on it's current course.

In the end some action will have to be taken to reorganize what we owe, but only if we talk about our options will be be in a position to lead rather than be led. The next Congress doesn't promise to be the place for serious debate and 2012 brings to prospect of a whole new raft of inexperienced lawmakers trying to deal with a problem that has not been dealt with by generations of experienced politicians. All of which bodes no good at all.

Wednesday, November 17, 2010

Excusing The Banks

I read this article in the Huffington Post by Shahien Nasiripour and I thought to myself, here we go... let's prepare the ground for everyone to accept another bank bailout, another promise of imminent financial collpase, and the fact that the banks BROKE THE LAW can be swept convneinetly under the carpet. Remember a couple of points here: 1) The banks created this mess by violating rules of proceedure and 2) We the people have created the moral hazard of bailing the banks out and here they are a second time demanding we save their asses after they broke our laws. Watch this particular line of argument gain steam as the banks slip closer and closer to the precipice. I'm enjoying their squirming but I don't expect this President will let them slip over the edge without a helping hand- a very large handful of your tax dollars promised as more national debt. They after all, are the people who get our politicians elected. Not your votes.
The ongoing "turmoil" roiling megabanks and their faulty home foreclosure practices may represent deeper, more systemic problems regarding the origination, transfer and ownership of millions of mortgages, potentially putting Wall Street on the hook for billions of dollars in unexpected losses and threatening to undermine "the very financial stability that the Troubled Asset Relief Program was designed to protect," a government watchdog warns in a new report.

Recent revelations regarding mortgage companies' use of "robo-signers" when processing foreclosure documents "may have concealed much deeper problems in the mortgage market," according to the Tuesday report by the Congressional Oversight Panel, an office formed to keep tabs on the bailout.

Disclosures by big banks that they employed people whose sole job was to essentially rubber-stamp foreclosure documents without reading them or verifying basic facts led firms like JPMorgan Chase, Wells Fargo and Bank of America to halt home repossessions beginning in late summer and early fall.

In turn, all 50 state attorneys general, federal prosecutors and a host of federal agencies began probing exactly what went wrong, and whether the use of robo-signers represented a one-time mistake or if they're emblematic of broader legal shortcuts taken to cut costs and disguise other shortcomings. The industry is fighting to calm regulators, investors, and members of Congress by arguing the revelations represent isolated cases that are being quickly resolved.

But the oversight panel, led by former Senator Ted Kaufman, a Delaware Democrat who replaced noted consumer advocate Elizabeth Warren when she left to form a new federal consumer protection agency, has misgivings.

In the best-case scenario, "embraced by the financial industry," the panel's concerns "may prove overblown," it notes. In the worst-case scenario, the "robo-signing of affidavits served to cover up the fact that loan servicers cannot demonstrate the facts required to conduct a lawful foreclosure," the panel said in its report. "In essence, banks may be unable to prove that they own the mortgage loans they claim to own."

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The results of this would be "severe," according to academics, industry experts, regulators and the panel's report.

"If such problems were to arise on a large scale, the housing market could experience even greater disruptions than have already occurred, resulting in significant harm to major financial institutions," the report states.

From underwriting fraudulent mortgages; to shuffling it through the mortgage securitization chain without followed proper legal procedures like the simple act of passing along paperwork; to concealing or doctoring basic facts when securitizing the mortgages and selling them to investors, large lenders and their partners on Wall Street could face hundreds of billions of dollars in losses by being forced to buy back faulty mortgages, some of which have already defaulted, from misled investors.

Analysts from Compass Point Research and Trading LLC pegged potential losses for 11 global banks to reach $179.2 billion, the Washington-based firm said in an Aug. 17 report.

Investors bought mortgage-linked securities with the promise that the mortgage conformed to basic underwriting standards, and that proper procedures were followed along the way. Steep losses on those investments and the discovery of potentially fraudulent activity pushed investors to force banks to buy them back.

The Federal Reserve Bank of New York and government-controlled mortgage giant Freddie Mac are among a group of bondholders demanding that Bank of America buy back some $47 billion worth of distressed home loans packaged into securities. Freddie and Fannie Mae also have billions in outstanding repurchase requests big banks have yet to act on. Their government overseer, the Federal Housing Finance Agency, recently issued 64 subpoenas seeking information from Wall Street. Private investors have scores of outstanding requests and have initiated numerous lawsuits.

The discovery of robo-signers, the oversight panel argues, could simply be the tip of the iceberg. If so, more revelations could only increase the pressure on large banks. Their potential exposure to losses could skyrocket.

Using financial analysts' estimates, the panel said that the nation's four largest banks by assets -- BofA, JPMorgan, Citigroup and Wells Fargo -- face about $52 billion in losses from repurchase requests. The figure is derived from $5 trillion worth of mortgage-backed securities sold from 2005 to 2008, which will result in $882 billion in losses. Of those losses, investors will request that banks buy back $240 billion in loans, of which only $103 billion will be successfully put back on the banks. The banks will suffer losses on half of that, the panel reasons.

The Obama administration argues that it has not found any evidence to date that would pose a systemic risk to the nation's financial system. While some 11 different federal agencies are investigating the matter, it's unclear just how hard they're looking. The administration has withheld critical details that would shed light on their efforts, experts say, such as the number of people assigned to the review, what documents officials are examining, or whether investigators are combing through individual loan files to ensure that lenders, mortgage servicers and other players in the securitization chain followed the letter and spirit of the law every step of the way.

"We strongly believe that the reported behavior within the mortgage servicer industry is simply unacceptable, and servicers who have failed to follow the law must be held accountable," Treasury Department spokesman Mark Paustenbach said in a statement.

Federal officials haven't been on top of this issue.

A separate Monday report by the Government Accountability Office notes that "mortgage servicers' practices...have not been a major focus" by bank regulators at the Office of the Comptroller of the Currency and the Federal Reserve.

"[T]he extent to which servicers' management of the foreclosure process is addressed in regulatory guidance and consumer protection laws has been limited and uneven," the GAO noted. Examinations by the OCC, which oversees the nation's largest banks, which are also the biggest mortgage servicers, "were generally limited to reviews of income that banks earn from servicing loans for others and did not generally include reviewing foreclosure practices."

The Fed reserved just "a few pages" related to mortgage servicing in its manual for bank examiners, according to the GAO. Like the OCC, it included reviewing the income from these operations, "but did not otherwise address in detail foreclosure practices."

"[F]ederal banking regulators had not regulatory examined servicers' foreclosures practices on a loan-level basis," the GAO noted.

Bank regulators reversed course after allegations of robo-signing became a national scandal. They're now reviewing servicers' practices. In a Nov. 10 letter to Rep. Alan Grayson, a Florida Democrat who recently lost his bid for reelection, the interim head of the OCC, John Walsh, said that OCC examiners "are reviewing samples of individual borrower loan files where foreclosures have either been initiated or completed to determine that all applicable laws have been followed."

The credit ratings agency Fitch Ratings said Nov. 4 that it may downgrade the entire U.S. sector of mortgage servicers due to concerns about their ability to process foreclosures.

The oversight panel said in its report that "Treasury so far has expressed relatively little concern that foreclosure irregularities could reflect deeper problems that would pose a threat to financial stability." It urged Treasury to step up its oversight and tell the public what it's finding, a demand previously voiced by bankruptcy and mortgage experts and academics like Adam J. Levitin of Georgetown University Law Center and Katherine M. Porter, a law professor at Harvard Law School on leave from the University of Iowa.

In addition, the oversight panel implored Treasury and the Fed to conduct another round of "stress tests" to gauge whether big banks can withstand tens of billions in potential losses.

"Widespread [mortgage repurchases] could destabilize financial institutions that remain exposed and could lead to a precarious situation for those that were emerging from the crisis," the panel said. A stress test would "illuminiate the robustness of the financial system and help prepare for a worst-case scenario."

The federal watchdog also recommended that lenders and servicers should not foreclose on any homeowner "unless they are able to do so in full compliance with applicable laws and their contractual agreements with the homeowner."

"If legal uncertainty remains, foreclosure should cease with respect to that homeowner until all matters are objectively resolved and vetted through competent counsel in each applicable jurisdiction," its report said.

The panel's chairman, however, stopped short of endorsing a nationwide moratorium on foreclosures.

Tuesday, November 16, 2010

Wealth And Elections

By New York Times Op-Ed Columnist Frank Rich.
Who Will Stand Up to the Superrich?

In the aftermath of the Great Democratic Shellacking of 2010, one election night subplot quickly receded into the footnotes: the drubbing received by very wealthy Americans, most of them Republican, who tried to buy Senate seats and governor’s mansions. Americans don’t hate rich people. They admire and often idolize success. But Californians took a hearty dislike to Meg Whitman, who sacrificed $143 million of her eBay fortune — not to mention her undocumented former housekeeper — to a gubernatorial race she lost by double digits. Connecticut voters K.O.’d the World Wrestling groin-kicker, Linda McMahon, and West Virginians did likewise to the limestone-and-steel magnate John Raese, the senatorial hopeful who told an interviewer without apparent irony, “I made my money the old-fashioned way — I inherited it.”

To my mind, these losers deserve a salute nonetheless. They all had run businesses that actually created jobs (Raese included). They all wanted to enter public service to give back to the country that allowed them to prosper. And by losing so decisively, they gave us a ray of hope in dark times. Their defeats reminded us that despite much recent evidence to the contrary the inmates don’t always end up running the asylum of American politics.

The wealthy Americans we should worry about instead are the ones who implicitly won the election — those who take far more from America than they give back. They were not on the ballot, and most of them are not household names. Unlike Whitman and the other defeated self-financing candidates, they are all but certain to cash in on the Nov. 2 results. There’s no one in Washington in either party with the fortitude to try to stop them from grabbing anything that’s not nailed down.

The Americans I’m talking about are not just those shadowy anonymous corporate campaign contributors who flooded this campaign. No less triumphant were those individuals at the apex of the economic pyramid — the superrich who have gotten spectacularly richer over the last four decades while their fellow citizens either treaded water or lost ground. The top 1 percent of American earners took in 23.5 percent of the nation’s pretax income in 2007 — up from less than 9 percent in 1976. During the boom years of 2002 to 2007, that top 1 percent’s pretax income increased an extraordinary 10 percent every year. But the boom proved an exclusive affair: in that same period, the median income for non-elderly American households went down and the poverty rate rose.

It’s the very top earners, not your garden variety, entrepreneurial multimillionaires, who will be by far the biggest beneficiaries if there’s an extension of the expiring Bush-era tax cuts for income over $200,000 a year (for individuals) and $250,000 (for couples). The resurgent G.O.P. has vowed to fight to the end to award this bonanza, but that may hardly be necessary given the timid opposition of President Obama and the lame-duck Democratic Congress.

On last Sunday’s “60 Minutes,” Obama was already wobbling toward another “compromise” in which he does most of the compromising. It’s a measure of how far he’s off his game now that a leader who once had the audacity to speak at length on the red-hot subject of race doesn’t even make the most forceful case for his own long-held position on an issue where most Americans still agree with him. (Only 40 percent of those in the Nov. 2 exit poll approved of an extension of all Bush tax cuts.) The president’s argument against extending the cuts for the wealthiest has now been reduced to the dry accounting of what the cost would add to the federal deficit. As he put it to CBS’s Steve Kroft, “the question is — can we afford to borrow $700 billion?”

That’s a good question, all right, but it’s not the question. The bigger issue is whether the country can afford the systemic damage being done by the ever-growing income inequality between the wealthiest Americans and everyone else, whether poor, middle class or even rich. That burden is inflicted not just on the debt but on the very idea of America — our Horatio Alger faith in social mobility over plutocracy, our belief that our brand of can-do capitalism brings about innovation and growth, and our fundamental sense of fairness. Incredibly, the top 1 percent of Americans now have tax rates a third lower than the same top percentile had in 1970.

“How can hedge-fund managers who are pulling down billions sometimes pay a lower tax rate than do their secretaries?” ask the political scientists Jacob S. Hacker (of Yale) and Paul Pierson (University of California, Berkeley) in their deservedly lauded new book, “Winner-Take-All Politics.” If you want to cry real tears about the American dream — as opposed to the self-canonizing tears of John Boehner — read this book and weep. The authors’ answer to that question and others amounts to a devastating indictment of both parties.

Their ample empirical evidence, some of which I’m citing here, proves that America’s ever-widening income inequality was not an inevitable by-product of the modern megacorporation, or of globalization, or of the advent of the new tech-driven economy, or of a growing education gap. (Yes, the very rich often have fancy degrees, but so do those in many income levels below them.) Inequality is instead the result of specific policies, including tax policies, championed by Washington Democrats and Republicans alike as they conducted a bidding war for high-rolling donors in election after election.

The book deflates much of the conventional wisdom. Hacker and Pierson date the dawn of the collusion between the political system and the superrich not to the Reagan revolution, but to the preceding Carter presidency and its Democratic Congress. They also write that contrary to the popular perception, America’s superhigh earners are not mostly “superstars and celebrities in the arts, entertainment and sports” or the stars of law, medicine and real estate. They are instead corporate executives and managers — increasingly (and less surprisingly) financial company executives and managers, including those who escaped with outrageous fortunes as their companies imploded during the housing bubble.

Go to Columnist Page »The G.O.P.’s arguments for extending the Bush tax cuts to this crowd, usually wrapped in laughably hypocritical whining about “class warfare,” are easily batted down. The most constant refrain is that small-business owners who file in this bracket would be hit so hard they could no longer hire new employees. But the Tax Policy Center found in 2008, when checking out similar campaign claims by “Joe the Plumber,” that only 2 percent of all Americans reporting small-business income, regardless of tax bracket, would see tax increases if Obama fulfilled his pledge to let the Bush tax cuts lapse for the top earners. The economist Dean Baker calculated that the yearly tax increase at the lower end of that bracket, for those with earnings between $200,000 and $500,000, would amount to $700 — which “isn’t enough to hire anyone.”

Those in the higher reaches aren’t investing in creating new jobs even now, when the full Bush tax cuts remain in effect, so why would extending them change that equation? American companies seem intent on sitting on trillions in cash until the economy reboots. Meanwhile, the nonpartisan Congressional Budget Office ranks the extension of any Bush tax cuts, let alone those to the wealthiest Americans, as the least effective of 11 possible policy options for increasing employment.

Nor are the superrich helping to further the traditional American business culture that inspires and encourages those with big ideas and drive to believe they can climb to the top. Robert Frank, the writer who chronicled the superrich in the book “Richistan,” recently analyzed the new Forbes list of the 400 richest Americans for The Wall Street Journal and found a “hardening of the plutocracy” and scant mobility. Only 16 of the 400 were newcomers — as opposed to an average of 40 to 50 in recent years — and they tended to be in industries like coal, natural gas, chemicals and casinos rather than forward-looking businesses involving the Green Economy, tech or biotechnology. This is “not exactly the formula for America’s vaunted entrepreneurial wealth machine,” Frank wrote.

As “Winner-Take-All Politics” documents, America has been busy “building a bridge to the 19th century” — that is, to a new Gilded Age. To dislodge the country from this stagnant rut will require all kinds of effort from Americans in and out of politics. That includes some patriotic selflessness from those at the very top who still might emulate Warren Buffett and the few others in the Forbes 400 who dare say publicly that it’s not in America’s best interests to stack the tax and regulatory decks in their favor.

Many of the countless tasks that need to be addressed to start rebuilding an equitable America are formidable, but surely few, if any, are easier than eliminating a tax break that was destined to expire anyway and that most Americans want to see expire. Two years ago, Obama campaigned on this issue far more strenuously than he did on, say, reforming health care. Now he and what remains of his Congressional caucus are poised to retreat from even this clear-cut battle. You know things are grim when you start wishing that the president might summon his inner Linda McMahon.

Monday, November 15, 2010

Democracy RIP

From the naked capitalism site this interview which lays out rather brutally the notion that democracy as practiced in the United States is no such thing and we are completely at the mercy of moneyed interests. I lost my faith completely after President Obama, as the interview explains it, failed to implement real change, a New Deal perhaps, putting the voters' interests first.
November 13, 2010
“Money and the Midterms: Are the Parties Over? Interview with Thomas Ferguson”

First posted at New Deal 2.0

Lynn Parramore: What do you make of the 2010 Election?

Thomas Ferguson: The 2010 election was not like others. It was certainly not simply 2006 in reverse, this time with the Republicans winning by a landslide. There is an obvious cumulative process at work here, with first one party and then the other receiving lopsided votes of no confidence from voters. The U.S. economy is barely moving; millions of Americans are looking for work and struggling to find ways to salvage their life savings and pensions; the international position of the U.S. is sliding; and the government is largely paralyzed on issues that voters care about most. We have clearly been in a political crisis for some years; the meaning of the 2010 election is that this crisis is becoming much deeper, moving into an entirely different stage. The parallels to the Great Depression are eerie: At that time, in many countries, voters seem to have followed an “in-out,” “out-in” rule. But that process does not go on forever. As the Depression deepened with no solutions, all kinds of strange creatures started creeping out of the shadows. The U.S. seems to be entering that stage.

Lynn Parramore: You’re implying the political system failed in some serious way. How so?

Thomas Ferguson: 2008 had all the earmarks of a classic realigning election, as my old colleague Walter Dean Burnham describes them. In the wake of the financial collapse, it looked for all the world like voters were ready for, even demanding, major reforms. They had elected a Democratic President on a promise of “Change,” with both houses of Congress solidly Democratic. That’s why many people were thinking that Obama was going give us a modern New Deal. They really believed him when he promised change. Instead, Obama’s failure on the economy has discredited the whole idea of the activist state. The dimensions of this failure were spectacular: he didn’t move aggressively to combat unemployment, the economic stimulus was half as large as it needed to be, and he didn’t deal with the mortgage crisis. So unemployment stayed way up, and many people remain in danger of losing their homes or are underwater on their mortgages, with the whole housing sector stalling out. To make matters worse, the administration lavished aid on the financial sector. The spectacle of the government aiding bankers, who turned around and paid themselves record bonuses, has just been unbearable for millions of people.

What the election really shows is not that the parties can’t agree — Democrats and most of the GOP leadership finally agreed on the bank bailouts, for example — but that the American people will not accept the policies that leaders in both parties prefer. In 2006 and 2008, the population voted no-confidence in the Republicans on the war and the economy. They have just now presented the Democrats with another resounding a no-confidence vote. What makes the current situation intractable is the fundamental reason for these serial failures. It’s obvious: big money dominates both major parties. The Obama campaign’s dependence on money and personnel from the financial sector was clear to anyone who looked, even before he won the nomination, promoted Geithner, brought Summers back, and reappointed Bernanke. For years I’ve promised people that I’ll tell you who bought your candidate before you vote for him or her, by simply applying my “investment theory of political parties.” When I analyzed the early money in Obama’s campaign in March, 2008, it was impossible not to see that many of the people responsible for the financial crisis were major Obama supporters. As I wrote for TPM, serious financial reform would not be on President Obama’s agenda.

Lynn Parramore: Lots of people point out that the banks have paid back the bailout funds and that the government actually made money on the deal. Can Obama at least claim that this policy was good for the American people?

Thomas Ferguson: The bailout was originally not Obama’s but George Bush’s, though Obama supported it during the campaign. The “banks-paid-us-back” story is mostly Treasury propaganda. The claim is really based on a narrow accounting of TARP funds. In fact, a lot of that aid has not been paid back. AIG, for example, is still heavily owned by the government. Secondly, the aid was way, way underpriced — meaning that the federal government got very little for its money. If you want to see what market-driven terms you could get for aiding banks at the height of the crisis, just look at what Warren Buffett received for buying into Goldman Sachs. Most importantly of all, the banks actually got far more help than the direct TARP monies. They received sweeping FDIC guarantees on their debt and truly gigantic amounts of aid from Freddie Mac, Fannie Mae, and the Federal Reserve. All three of these entities have supported the market for mortgage-backed securities that the banks own. They bought huge amounts of them, taking the risks right out of banks, putting it on taxpayers, and in the process handing handsome profits to banks. Regulators allowed the banks to rip off their depositors and credit and debit card holders, while the Fed handed out virtually free money to banks. To add insult to injury, the regulators have allowed the bankers to use the profits from all these government subsidies to award themselves huge, indeed, record-setting bonuses. Those funds should have been used to strengthen the balance sheets of the banks. And if all this weren’t enough, regulators also permitted the banks to hide the true value of their bad loans and they let it be known that the largest ones were Too Big To Fail, which allows them to borrow funds more cheaply than smaller banks. The net result of these big bank-friendly “forbearance” policies is that we have all paid to make these banks fabulously profitable, yet they still remain very weak institutions and are not lending. The resemblance to Japan’s “lost decade” is obvious.

Lynn Parramore: Was there ever a chance that Obama could be a new FDR?

Thomas Ferguson: People who were hailing Obama as a new FDR were viewing American politics through the wrong lens. They were treating public policy as the result of the will of voters. But in fact, American political parties are mostly bank accounts. What you are told is the voice of the people is usually the sound of money talking.

Much of my research has been devoted to showing how both parties are dominated by blocs of large investors. The policy choices political parties present to the public on Social Security, macroeconomic policy, campaign finance reform, and indeed nearly every other policy area save a handful of hot-button “social issues” are basically dominated by big money. The consequences are disastrous: Neither party can level with the American people in crises. They cannot diagnose problems like the financial crisis with any honesty and they can’t make any detailed case for why the policies they do sponsor would actually benefit ordinary Americans. What we get instead are pseudo-explanations, myths, and sometimes, obvious mendacity. Political discussions in the media, where they are not distorted by the plain interests of the concerns themselves, are dominated by denizens of the “think tank” and “policy institute” world. Most of these institutions are heavily driven by, surprise, surprise, big money in the form of donors. As Robert Johnson and I documented in our paper for last year’s INET Conference, growing inequality in the United States complicates this dismal picture by converting regulatory agencies into recruiting grounds for would be millionaires via the revolving door, while at the same time permitting the financial sector to substitute virtually untraceable stock tips for direct contributions.

Lynn Parramore: Where do you see politicians making up policy myths right now?

Thomas Ferguson: On the Republican side, you again have people claiming that the problems of the Great Recession can be solved by reapplying the policies of Herbert Hoover. Surely this is amazing; they are plumping for going straight back to the deregulated market economy that brought you the 2008 disaster. It’s simply crazy, for example, to even consider leaving financial houses free to decide on their own level of leverage, to sell derivatives on exchanges that are not fully transparent, or to sell junk securities to their own customers without telling them. But the Republicans are threatening to roll back even the anemic Dodd-Frank financial “reform” legislation, though, to be fair, they will have plenty of Democratic support for some of this.

And it’s obvious that neither party wants to address the problem of campaign finance reform. Instead, the Democrats spent part of the campaign talking up dangers from “foreign” money. It’s not as though the problems of the system of American political financing come from foreign money. The problem is mostly domestic money. And the Supreme Court has made everything worse with its Citizens United decision. But, note well, the tragedy of big money in the Democratic Party was clear long before that Supreme Court ruling or even before Obama started running for president. Just look at the earlier cases I analyzed in my Golden Rule.

Fundamentally, the problem of money and politics is very simple: campaigning is costly, much more costly than classical democratic theory has acknowledged. Some way has to be found to pay for it. We may take it as an axiom that those who pay for the campaign will control it. So the choices boil down to just two: either we all pay a little, through public financing of campaigns, or a relative handful of the super-rich end up controlling the system because they pay for the campaign.

Lynn Parramore: Does the financial sector give more to Democrats or Republicans?

Thomas Ferguson: We’ve all seen the staggering statistics on lobbying and political contributions by the financial sector over the last couple of years. More recently, we’ve also heard about how finance is supposed to have turned against the Democrats. There’s something to this: bank contributions to the Republicans increased when discussions of a Consumer Financial Protection Bureau started as the House began considering Dodd-Frank. Contributions to the GOP swelled when the White House panicked after Scott Brown won the special election to fill Ted Kennedy’s seat in Massachusetts and endorsed the so-called “Volcker Rule”, just as public indignation about bank bonuses was at its height. But the size of the shift toward Republicans has been exaggerated. If you look at total political contributions from securities and investment firms over the entire 2009-2010 election cycle, you will see that more money still flowed to the Democrats. Commercial banks, a narrower sub-group of the financial sector, gave more to Republicans, but only by about 60-40.

Lynn Parramore: So where does all this leave the American political system?

Thomas Ferguson: I think the answer is pretty clear: The political system is disintegrating, probably heading toward a real breakdown of some sort. The striking thing is that if you look beneath the surface of the victorious Republican Party, it is about as contentiously divided as the Democrats. The Tea Party’s distrust of the party establishment is apparent, but the divisions within the GOP predated the Tea Party’s emergence. They were obvious in 2008. At that time, it was pretty clear that a majority of the party did not want McCain. But there was no consensus on an alternative. 2012 is looking like a repeat of 2008: All kinds of people are eyeing the race, including several would-be candidates who can probably raise large war chests. In the end, somebody is going to win — my dark horse candidate is Haley Barbour, probably the Republican politician who is most closely connected to big business — but the whole party is unlikely to unite around him or her. In all probability, the GOP primaries will turn into a demolition derby, tending to discredit everyone involved. I also doubt that the Republican governors who are now promising to cut state budgets will find the public nearly as receptive to deep cuts as they think it will be, as people watch essential social services disappear, prisons empty, and see educational institutions trashed out that are in many cases the only hope of lagging states. Nor do I believe there is any popular majority for cutting Social Security, which is clearly emerging as a major issue just as we speak. And parts of the health care legislation are really popular, so that just saying no is going to look pretty foolish after some months.

The key to the future of American politics is the course of unemployment, though that is linked vitally to housing markets and how you deal with people’s lost pensions and savings. If unemployment stays high, I would not be surprised to see some intra-party challenges to President Obama, even though right now everyone dismisses that possibility. The unions went down the line with Obama for the last two years and they have little to show for it; some of them are already scouting other possibilities. It is also interesting to speculate about Jerry Brown — just watch his star rise if he succeeds in overcoming the California fiscal crisis. Were Brown to defeat Obama in a few primaries, then the temptation for Hillary Clinton to come in would be intense. And right now the United States is mired down in two shooting wars that are not going very well.

Even more interesting are the possibilities of a third party candidacy — the obvious entrant is Mayor Bloomberg. He’s plainly considering it. I notice that he does not appear to have folded the network of organizations that quietly talked up his candidacy in 2008. That tells you plenty.

Lynn Parramore: So is American politics fated to be all doom and gloom?

Thomas Ferguson: If you want a happy ending, you probably shouldn’t follow our system too closely in the next few years. Instead, go see a Disney movie, unless perhaps Tim Burton is making it. Bloomberg, Brown, or Hillary Clinton, though, are all known quantities. But the experience of the Great Depression was that as things failed to improve the swamp creatures got their chance. And when the economic situation shook out, the geopolitics became more sinister. It would be a rash person indeed who counted on a happy ending to this mess.

Sunday, November 14, 2010

Open Letter To The Deficit Commission

First posted by Steve at The Daily Bail

Dear Esteemed Chairmen:

No huge surprise here. What’s unfortunate for you is that for years, even decades – going back to Ross Perot – the American people have been prepared for and willing to accept changes (cuts) to Social Security. You, the politicians never gained the courage to ask, but I think for the most part the general public has been ready. And since I’ve been screaming about these issues my entire adult life, and have always pushed the concept of shared sacrifice as a means to budget sanity and limited government, I’m not comfortable with what I’m about to write, but it’s inescapable after watching and recording a 32-month orgy of fiscal mayhem dominated by trillion-dollar bailouts, trillions in wasted stimulus, and trillions gifted to the military-industrial killing machine.

Fast forward from the Perot deficit awakening 20 years ago, and finally, you, the generationally-irresponsible political class seem to be facing up to the unfunded entitlement budget nightmare of your own creation – or at least you’re in the discussion phase of ‘facing it’ – and what is the societal backdrop? Seething anger over the recession, the wars, multiple failed stimulus, dollar destruction, QE, and the government bailouts of favored industries.

So against this backdrop, your Commission now recommends cuts to Social Security and a hike in the retirement age to help us on our merry way to a fiscally sane future.

Here’s my recommendation for you.

The American people are willing to sacrifice as part of a shared effort at righting our budgetary path, but they are not prepared to be sacrificial lambs led to the ‘benefits and promises slaughterhouse’ while the Wall Street Banker Pigs gorge on trillions in stealth FED and FDIC bailouts, ZIRP giveaways and a record $144 billion in bonuses – an amount equivalent to the 49th largest GDP in the world – $144 billion in bonuses being paid by criminally insolvent banks that are only still operating due to a Wall Street financed K-Street lobbying tsunami that forced FASB to change the accounting rules that now allow these same insolvent institutions of usury and arrogance to apply Faustian valuations to complete shit assets all over their lying, godforsaken, Enron resembling, off-balanced, imbalanced, bs-balanced, sheets.

Banks exist in the lala land of leveraged deferred tax assets representing most of tier-1 capital at Citigroup, of hundreds of billions of helocs at Wells Fargo worth pennies, but marked at dollars, of hundreds of billions of fraudulent MBS pumped out by Countrywide, whose liability now sits with Bank of America. This is a mere glimpse of the great banking lie that provides cover for the $144 billion insolvent bonus river that bathes the Street, all supported and paid for by taxpayers, Treasury and the Federal Reserve. Therefore, ultimately, taxpayers.

In this environment, selling ‘cuts to social security’ is not going to work, and considering the role you both played in creating the irresponsible federal spending machine that now controls Washington and has bankrupted future unborn generations, fuck you for even bringing it up.

Saturday, November 13, 2010

Two Sides Of Health Care

WASHINGTON -- Health insurance profits are skyrocketing in 2010 compared to last year's returns and the outgoing chairman of the House subcommittee that oversees the companies is calling on them to return the profits to consumers in the form of premium reductions.

"Your ten firms alone have reported over $9.3 billion in profits for the first three quarters of 2010," writes Rep. Pete Stark (D-Calif.), chairman of the Ways and Means health subcommittee -- and, for a day, chairman of the full committee. "On average, your profits have gone up 41 percent from last year."

Robert Zirkelbach, a spokesman for the leading health insurance trade lobby, America's Health Insurance Plans, said that Democrats shouldn't focus on the companies' profits, but rather the overall cost of health care.

"The data are clear that underlying medical costs are driving up the cost of health care coverage. For every dollar spent on health care in America, less than one penny goes towards health plan profits, and it's time Washington addressed the other 99 cents," he told HuffPost. He added that health insurance profits are lower than returns in other health care sectors.

From The Huffington Post.

Every day, Aidan Reed, a five-year-old with acute lymphoblastic leukemia, finds time between his chemotherapy treatments, painful spinal taps and oncologist checkups for his favorite hobby: drawing pictures of monsters.

"Drawing monsters was his second favorite hobby before he got sick," Aidan's dad, Wylie Reed, told Huffpost. "His first hobby was dressing up in costumes and acting out whatever character he was dressed as. But he's a little more lethargic now from the chemo and all the treatments, so he just keeps up with the drawings."

Aidan's aunt Mandi, 26, was frustrated by the fact that she couldn't be with her nephew's family in their hometown of Clearwater, Kansas, to offer comfort when the leukemia was diagnosed, so she came up with an idea to help from afar: She would turn Aidan's colorful monster drawings into frameable prints, sell them on Etsy, and donate the proceeds to Aidan's parents for help with his treatments.

On Sept.17, nearly a week after Aidan found out he had leukemia, Mandi sold his first print on Etsy, and the business quickly took off. In less than a week, Mandi had sold about 2,000 of Aidan's prints.

"My lucky number was 60. I just wanted to sell 60 prints," she told MSNBC. "And now here we are at 2,460. ... I have two printers constantly going in my dining room. In between taking care of my baby, I've been trying to fill orders."

At $12 apiece, minus taxes and the cost of materials, Wylie Reed estimates that Aidan's paintings have earned about $50,000 for the family so far, although they haven't collected any of the money yet because they aren't sure how the proceeds will be taxed. The money will be crucial toward helping them keep up with Aidan's treatments, because even though the Reeds are covered through Wylie's insurance plan, the cost of co-pays, wage losses from taking time off work, and the the expenses of Aidan's new-born baby brother are difficult to keep up with on a single income.

"I've had to take family medical leave because my wife has a newborn, and she can't stay in the hospital with an infant for a week at a time when Aidan has an infection," he told HuffPost. "The most I could possibly lose would be 12 weeks each year, which is 25 percent of my income. Everybody can understand what it feels like to lose a quarter of your income. My sister's help is gonna be able to replenish the savings we lost, help with deductibles, pay for whatever my portion of the oncologists costs will be, and help reimburse all the lost wages."

After a recent infection surrounding an intravenous line into his heart, Aidan is now carrying a backpack around filled with antibiotics that flow through a line into his bloodstream. Knowing how uncomfortable his son is all the time, Reed says he would not consider letting his son go through any of these procedures alone, even if it means losing a quarter of all his wages for the year.

"I can't let him experience a spinal tap on his own without me being there to hold his hand and talk him through it," he said. "Aidan will ask me what they're doing and why they're doing it, a series of eight to ten questions usually. Then when they're done, he asks me those same questions all over again. That's kind of his coping mechanism, along with the monster drawings."

Fortunately, the Reeds have received the good news that Aidan's particular form of leukemia is 90 percent curable, so the main thing they have to be concerned with is continuing to pay for his treatments and keeping him as comfortable as possible throughout the process.

Friday, November 12, 2010

President Obama And The Banks

Everyone has an opinion about why the Republicans swept the House of Representatives and many Governor's positions in the elections. Listening to talk radio the inarticulates say they understand perfectly well what the president has been doing and it's his policies they don't like, not that he has failed to explain himself. The Democrat left says the President compromised his party by failing to steam roller his policies to a successful conclusion. An economist here suggests the President listened to economic advisers who had, or have the wrong interests at heart. Was it the banks and no health care that caused the electoral train wreck?

Obama's Problem Simply Defined: It Was the Banks
by James K. Galbraith
Obama must break his devil’s pact with the banks in order to succeed.

Bruce Bartlett says it was a failure to focus. Paul Krugman says it was a failure of nerve. Nancy Pelosi says it was the economy's failure. Barack Obama says it was his own failure -- to explain that he was, in fact, focused on the economy. As Krugman rightly stipulates, Monday-morning quarterbacks should say exactly what different play they would have called. Paul's answer is that the stimulus package should have been bigger. No disagreement: I was one voice calling for a much larger program back when. Yet this answer is not sufficient.

The original sin of Obama's presidency was to assign economic policy to a closed circle of bank-friendly economists and Bush carryovers. Larry Summers. Timothy Geithner. Ben Bernanke. These men had no personal commitment to the goal of an early recovery, no stake in the Democratic Party, no interest in the larger success of Barack Obama. Their primary goal, instead, was and remains to protect their own past decisions and their own professional futures.

Up to a point, one can defend the decisions taken in September-October 2008 under the stress of a rapidly collapsing financial system. The Bush administration was, by that time, nearly defunct. Panic was in the air, as was political blackmail -- with the threat that the October through January months might be irreparably brutal. Stopgaps were needed, they were concocted, and they held the line.

But one cannot defend the actions of Team Obama on taking office. Law, policy and politics all pointed in one direction: turn the systemically dangerous banks over to Sheila Bair and the Federal Deposit Insurance Corporation. Insure the depositors, replace the management, fire the lobbyists, audit the books, prosecute the frauds, and restructure and downsize the institutions. The financial system would have been cleaned up. And the big bankers would have been beaten as a political force.

Team Obama did none of these things. Instead they announced "stress tests," plainly designed so as to obscure the banks' true condition. They pressured the Federal Accounting Standards Board to permit the banks to ignore the market value of their toxic assets. Management stayed in place. They prosecuted no one. The Fed cut the cost of funds to zero. The President justified all this by repeating, many times, that the goal of policy was "to get credit flowing again."

The banks threw a party. Reported profits soared, as did bonuses. With free funds, the banks could make money with no risk, by lending back to the Treasury. They could boom the stock market. They could make a mint on proprietary trading. Their losses on mortgages were concealed -- until the fact came out that they'd so neglected basic mortgage paperwork, as to be unable to foreclose in many cases, without the help of forged documents and perjured affidavits.

But new loans? The big banks had given up on that. They no longer did real underwriting. And anyway, who could qualify? Businesses mostly had no investment plans. And homeowners were, to an increasing degree, upside-down on their mortgages and therefore unqualified to refinance.

These facts were obvious to everybody, fueling rage at "bailouts." They also underlie the economy's failure to create jobs. What usually happens (and did, for example, in 1994 - 2000) is that credit growth takes over from Keynesian fiscal expansion. Armed with credit, businesses expand, and with higher incomes, public deficits decline. This cannot happen if the financial sector isn't working.

Geithner, Summers and Bernanke should have known this. One can be fairly sure that they did know it. But Geithner and Bernanke had cast their lots, with continuity and coverup. And Summers, with his own record of deregulation, could hardly have complained.

To counter calls for more action, Team Obama produced sunny forecasts. Their program was right-sized, because anyway unemployment would peak at 8 percent in 2009. So Larry Summers said. In making that forecast, the Obama White House took responsibility for the entire excess of joblessness above eight percent. They made it impossible to blame the ongoing disaster on George W. Bush. If this wasn't rank incompetence, it was sabotage.

This is why, in a crisis, you need new people. You must be able to attack past administrations, and override old decisions, without directly crossing those who made them. President Obama didn't see this. Or perhaps, he didn't want to see it. His presidential campaign was, after all, from the beginning financed from Wall Street. He chose his team, knowing exactly who they were. And this tells us what we need to know, about who he really is.

Thursday, November 11, 2010

That Pernicious Federal Reserve

From The Automatic Earth http://theautomaticearth.blogspot.com/ a discussion of why the Federal Reserve should be abolished. In the past I have rather dismissed the noises made by Representative Paul Ryan on the subject of the Federal Reserve when he demanded (and plans to demand next year) an audit of the bank. Nowadays a lot of people are wondering why our economic fate is in the hands of an institution which is not part of the constitutional checks and balances as laid out rather eloquently here. Chair Ben Bernanke's recent decision to spend a lot of new money to buy US debt, that no one else wants has been seen as the start of a new round of US debasement. Debate about the Federal Reserve has been muttered for decades but now, with our economy losing credibility around the world, and with the rise in importance of Brazil India and China, the purpose of the Federal Reserve in papering over the cracks in our collapsing economy seems less and less relevant. It's all part of postponing the seemingly inevitable crash.

Ashvin Pandurangi:

Plutocracy Now

Every so often, Americans should stop everything they're doing for a moment, and reflect upon the nature of their country. Specifically, upon what has traditionally been this country's defining characteristic. Was it our capitalist economy? No, there are many capitalistic countries around the world and capitalism was not first formulated by Americans.

What about our emphasis on personal freedom? Well, once again, many countries preach the virtues of freedom and many groups of people have fought for freedom well before America was formed. Surely it has been our diverse populace and our tolerance of all races, genders, sexual preferences... yeah, right. Personally, I would answer that it was our written Constitution and the democratic values embodied within it.

No other country had ever codified the structures and processes of their governing institutions to such an extent in one single document. Many people focus on the Bill of Rights when speaking about the Constitution, but the first four Articles are just as important.

They synthesized political ideas that were developed over hundreds of years by some of the most insightful thinkers, such as separation of federal powers, checks and balances, vertical division of powers (federalism), an independent judiciary and, of course, representative democracy. The latter emphasizes the notion that any policies enacted by the federal government must be authorized by the people, through their elected representatives who are held accountable to constituents every few years.

So what's the state of our Constitutional democracy today? Simple, it doesn't exist. International corruption surveys typically rank the U.S. higher (less corrupt) than most other countries, but this simply proves how bad these surveys are at capturing the essence of real, hardcore corruption.

We could write stacks of books on the prevalence of money in politics and the swarms of lobbyists who descend on Washington every single week, and many people have, but it's simpler to just focus on the most egregious example of corruption. The most powerful, influential economic policy-making institution in the country, the Federal Reserve ("Fed"), is an unelected body that is completely unaccountable to the people. Well, let's back up and start with the fact that this institution's very existence is most likely unconstitutional. Here's why:

Article I, Section 8 of the Constitution states that Congress has the power to "coin money" and "regulate the value thereof". The Supreme Court has long held that Congress can delegate its legislative powers to Executive agencies as long as it provides an "intelligible principle" to guide the agencies' action.

We don't even have to reach the question of whether the Federal Reserve Act sets out an "intelligible principle", however, because existing precedent states that Congress cannot delegate its powers to private institutions. Schecter Poultry (held "a delegation of its legislative authority to trade or industrial associations...would be utterly inconsistent with the constitutional prerogatives and duties of Congress). In that case, the Supreme Court struck down parts of FDR's National Industrial Recovery Act which authorized these private organizations to draft "codes of fair competition" and submit them to the President for approval.

The Fed, by it's own admission, is an independent entity within the government "having both public purposes, and private aspects". By "private aspects", they mean the entire operation is wholly-owned by private member banks, who are paid dividends of 6% each year on their stock. Furthermore, the Fed's decisions "do not have to be ratified by the President or anyone else in the executive or legislative branch of government" and the Fed "does not receive funding appropriated by Congress".

In 1982, the Ninth Circuit Court of Appeals confirmed this view when it held that "federal reserve banks are not federal instrumentalities... but are independent, privately owned and locally controlled corporations". [The Legality of the Federal Reserve System, 5]. Yet, the Fed has exclusive control over the government's ability to create money and regulate its value through the targeting of interest rates and open market operations (when the Fed buys an asset, it typically prints the purchase money out of thin air). How Congress can delegate its Constitutional powers to this independent, privately owned and unaccountable institution is beyond me.

Still, the Constitutional issue is just the tip of the iceberg when it comes to this twisted institution's embodiment of all things undemocratic. When Congress (and the people it represents) makes a valid delegation of its powers to an executive agency, it almost always retains a level of control through its powers of appropriations, impeachment and oversight. For some not-so-strange reason, the Fed isn't appropriated any funds by Congress, and so it cannot be financially "starved" like any other agency.

The members of the Fed's Board of Governors also cannot be impeached by Congress, which is especially twisted, since the President of the United States can be impeached for "high crimes and misdameanors". [The Legality of the Federal Reserve System, 8]. What about oversight? Well, a Congressional committee holds "hearings" every once in awhile to ask the Chairman a few irrelevant questions, but if this process is what passes for "oversight", then we have truly gone off the deep end.

Speaking of committees and oversight, when Fed Chairman Ben Bernanke testified under oath to Congress in July, he said in no uncertain words, "the Federal Reserve will not monetize the [federal] debt". [1]. Fast forward to the day after mid-term elections, in which the American people clearly voted for LESS spending/printing, and the Fed announces its plan to monetize $900 billion in treasury bonds. [1].

The Chairman has proven his previous testimony before Congress to be a blatant lie, but instead of condemning the Fed's recent actions, the federal government has welcomed it with open arms. That's quite some oversight we have there. Perhaps the best way to oversee the Fed's actions would be to actually figure out what in Lloyd Blankfein's name it's been doing.

In this country, that's easier said than done. The Government Accountability Office is not allowed to audit the Fed's transactions for or with foreign governments, central banks, nonprivate international organizations or those made under the direction of the Federal Open Market Committee ("FOMC"). It just so happens that these are the types of transactions which are most influential on global and domestic financial markets, especially the open market operations.

These operations are conducted by the FOMC, who is comprised of the Board of Governors (7 members appointed by President and confirmed by Senate) and five representatives from the regional Fed Banks. Although the President appoints the Board of Governors, he must choose from a list of candidates provided by private institutions, and the other five representatives are also typically nominated by private member banks. Talk about an organization with conflicts of interest, lack of transparency and lack of accountability all tightly woven into its very fabric!

In the last two years, the almighty Fed has printed trillions of dollars in our name to buy worthless mortgage assets from "too big to fail" banks. It has lent these banks our hard-earned money at about 0% interest, so they could lend our own money back to us at 3%+. These banks also used our free money to ramp equity and commodity markets, which mostly benefitted the top 1% of our population who owns 43% of financial wealth [2], and conveniently, also owns the Fed.

The latter has kept interest rates at next to nothing to punish savers and encourage speculation, making everything less affordable for average Americans who have seen their wages stay the same, decrease or disappear. What's left standing is the perniciously powerful, highly secretive and entirely unaccountable Fed, who now epitomizes the state of American democracy.

We have all become subject to the misguided and/or malicious whims of a few wealthy individuals operating the levers of economic policy, with no adequate means of challenging their power. Our most treasured contribution to political society has been reduced to a bunch of meaningless articles and amendments, containing equally meaningless words. We the people, in our pursuit of "a more perfect union", have fallen into an age-old trap.

Our economic policies, currency and laws are all manufactured by our very own private dictator, who amasses a fortune from our collective exploitation and destruction. Then, this despot continues to operate like nothing ever happened. We can scream "ABOLISH THE FED" all day, non-stop to every single politician at the top of our lungs, but it will never happen.