Seven Reasons Why We All Need to Pick up a Pitchfork
Since the financial near-collapse of 2008, we’ve inaugurated a new president, bailed out big banks, and seen Congress fumble an attempt to reform healthcare. Most recently, we’ve seen our Supreme Court rule that corporations have a right to free speech. None of this sounds outrageously shocking. What’s the big deal?
The big deal is a shift in business as usual. Here are seven reasons YOU should be raising Cain with your Congressperson, no matter your party:
1) THE SHEER MAGNITUDE OF THE BAILOUT. It’s fairly well-understood that the financial crisis was very bad. So bad that the government had to enact unprecedented emergency funding of private enterprise followed by a substantial stimulus effort to keep the economy from plummeting into a 1930s-like depression. The cost to the taxpayers? ELEVEN TRILLION DOLLARS. Debt that will take decades to repay.
2) THE DISTORTION OF FREE-MARKET THEORY. What began as a return in the Reagan era to what some people (mostly conservatives) consider to be a bedrock philosophy here in the US: a belief in the righteousness of free-markets, has turned instead into the dark-side of Objectivist Randianism. Investment banks broke zero laws while dragging the entire world’s credit markets into the gravel by profit-raiding under the guise of re-selling debt. Our entire financial system nearly collapsed, and now our economy struggles in a deep recession, while the big bankers and clever investment guys lobby Congress against regulation, because we all know, regulation is un-American and anti-free-market. Regulation is bad, but relying on bailouts from government is okay?!? These guys mean business. From the NY Times:
The nine biggest participants in the derivatives market — including JPMorgan Chase, Goldman Sachs, Citigroup and Bank of America — created a lobbying organization, the CDS Dealers Consortium, on Nov. 13, a month after five of its members accepted federal bailout money.
To oversee the consortium’s push, lobbying records show, the banks hired a longtime Washington power broker who previously helped fend off derivatives regulation: Edward J. Rosen, a partner at the law firm Cleary Gottlieb Steen & Hamilton. A confidential memo Mr. Rosen drafted and shared with the Treasury Department and leaders on Capitol Hill has, politicians and market participants say, played a pivotal role in shaping the debate over derivatives regulation.”
Derivatives, of course, being the most profitable “instrument” in a financial institutions arsenal. And a large cause of the crisis.
3) LOBBYING IS PREVENTING EFFORTS TO REGULATE THE BIGGEST BANKS. The Senate banking committee is hearing testimony about whether or not to adopt policy called “the Volcker Rules” after ex-Federal Reserve Chairman Paul Volcker, who believes in a return to a separation of investment firms (higher risk) and traditional commercial banking (lower risk, or should be!). President Obama recently came out in support of the Volcker Rule. From Business Week:
The White House defines proprietary trades as those not done for the benefit of customers, a senior administration official said when the Volcker plan was announced. Regulators would have the power to ask banks whether certain trades are related to client business, the official said. If they’re not, the regulators could order firms to exit the positions.”
In other words, if the banks are risking YOUR money for their own private benefit, it’s not allowed. Due to heavy lobbying by the financial industry, the Volcker Rules will likely not pass in the Senate.
4) THOSE BIG, FAT BONUSES. Not only are bankers once again pulling down nauseatingly huge bonuses, they are currently testifying to Congress that regulation will hamper financial innovation. Hello? Didn’t financial “innovation” cause this entire problem? Gerald Corrigan, the Managing Director of Goldman Sachs, testified that he has always believed that banks are “special” and that he could agree to the pre-crisis rule where banks do not enjoy the discount window “so long as Section 13 lending remains a possibility in extreme circumstances.” In other words, as long as they could have a bail-out loans from the Fed if they needed one, lending previously reserved for traditional banks only, not bank holding companies like Goldman Sachs.
One commenter put it this way:
They [Goldman Sachs] were hours, if not minutes, from going the way of the dodo, and yet, 16 months later they are rolling in ill-gotten gains, denying ever having been in trouble, consolidating power, and flipping the bird to anyone who bothers to raise the subject. Chutzpah? Cojones? Sociopathic behavior? It probably doesn’t matter at this point. The predator class seems to hold all the cards, those being: recalcitrance, obfuscation, entitlement… When you have money, power, and are unwilling to “play well with others”, it is quite easy to dig in your heels, threaten to shut off the money supply to incumbent politicians, and sit back and watch your dreams (our nightmares) come true.”
5) WE ALL LOST IN THE RECESSION WHILE THE BANKS SCORED BIG. According to Simon Johnson, former chief economist of the IMF:
As a result of the crisis and various government rescue efforts, the largest 6 banks in our economy now have total assets in excess of 63 percent of GDP. This is a significant increase from even 2006, when the same banks’ assets were around 55 percent of GDP, and a complete transformation compared with the situation in the US just 15 years ago– when the 6 largest banks had combined assets of only around 17 percent of GDP.”
Assets in excess of 63 percent of GDP?!?!?! Meet your new overlords.
6) THE FINANCIAL INDUSTRY OWNS CONGRESS. Congress has little incentive to fight against this oligarchy of investment bankers. Because, many congressional representatives are in effect paid to protect business and profit.
From a paper cited in the blog of Mark Thoma, Dept of Economics of the University of Oregon: “By going through individual lobbying reports, we identify all lobbying activities by financial institutions related to the regulation of mortgage lending and securitisation. During the period of the boom from 2000 to 2006, we find 16 pieces of federal legislation aimed at enhancing the regulation of predatory lending practices, none of which ever became law. The amounts spent on lobbying in relation to these laws were substantial and were spent mostly by large financial institutions.” Emphasis added. Because this means that the crisis happened because lobbyists from financial firms influenced legislation AGAINST regulation. The authors further found that institutions that lobbied harder took more risks and fared worse in the crisis than banks that did not invest in lobbying. The authors concluded:
Recent reports show that financial institutions intensified their lobbying efforts in 2009 to fight against an overhaul of derivatives regulation and legislation. Johnson argues that substantial reform will fail unless the political power of the finance industry is weakened.”
7) THE SUPREME COURT JUST SIDED WITH BIG BUSINESS OVER VOTERS. Enter the Supreme Court with the Citizens United v. Federal Elections Commission (FEC). According to a press release from Feb 5, 2010: “The Federal Election Commission today announced that, due to the Supreme Court’s decision in Citizens United v. FEC, it will no longer enforce statutory and regulatory provisions prohibiting corporations and labor unions from making either independent expenditures or electioneering communications.” So there goes that nice idea that maybe we need to limit money’s influence on the political process. Thanks Supreme Court.
So we have two choices as average citizens. Either we make some noise, make some calls to Congress and work to pass some regulation and reforms (like the Fair Elections Now Act), or we sink into apathy and watch the “free market”continue to reward the grotesquely wealthy. I may be a progressive, but this storm of recent events should give even a staunch libertarian the shivers. Our government bailed out massive banks with taxpayer money leaving us with staggering debt. Now those same banks are arguing against regulation so they can do it all again. And the Supreme Court just exacerbated the problem by encouraging the influence of big business in our democratic process. Angry yet?
To Regulate or Not to Regulate?
REGULATE, FOOS!!
It can’t be undone now, but choosing to tackle a resource-demanding issue like healthcare reform in the midst of such a severe economic downturn was just stupid. Helloo? Obama? Pelosi? Agggh, stupid. I’d love to see meaningful, substantive healthcare reform, and especially A PUBLIC OPTION, but it just wasn’t going to go well when there were so many other issues that should’ve taken precedence. How about focusing on a decisive Gitmo solution and probably even torture prosecutions? How about a massive environmental policy turnaround to correct for the Bush years? And the biggest: re-establishing a foundation for an economy that doesn’t list like a drunken sailor every 5-10 years. I am not surprised AT ALL that Brown won in Massachusetts. The Dems have lost focus almost as bad as the Republicans.
The issue that should’ve been first and foremost on the agenda is working to see that the economy remains on solid ground. I’ve written before that we need a sustainable economy. Briefly defined, we need to account for external costs to the environment, move away from measuring success in the form of a gross national product, and establish a stable, sound economy that is not dependent on continuous, unending, unsustainable, resource-depleting, materialistic, consumer-based GROWTH rather than an economy that is balanced in an equilibrium with brief periods of expansion and contraction. (And, yeah, easier said than done. But at a minimum, can we get some accountability from the Fed?!?!?! Cause I’m just not so sure that their goals still reflect the goals of a democracy!)
This is even more relevant today. In a horrible case of life imitating the Onion, we have analysts saying that we may ALREADY be in the next bubble. By taking responsibility for so much bad debt, the US government has eaten the ugly bubble and is now looking like the stink spirit in a Miyazaki film. Result? A populace that sees our government as an over-reaching bloated hogstorm of irresponsibility with deep ties to the ultra-wealthy and little concern for holding fast to the ideals of our democracy. Both parties have sold out hard. Neither one of them is worth the price of socks. All the posturing about Libertarian ideals and the smothering evils of regulation — pshah!
Do we need to increase regulation of the finance industry? YOU BET YOUR ASS WE DO!!! And don’t let any smooth-talking faux Libertarian tell you otherwise. Alan Greenspan relied on the all-knowing invisible hand and just let it keep shaping more exotic financial “instruments,” which is code for “wrapped-up in 27 layers of legalese and fancy bows when we know damn well that there’s nothing in here but bait-and-switch crap.” I’ve read lots of nay-saying about regulation from free-market fools who claim that regulation will strangle financial “innovation.” Helllllooooo??? We don’t need innovation in finance! We need stability and integrity!! If you want innovation go invent a REAL PRODUCT!!
Right. So. Because smarter people than me say everything better, here is a link to an article that you must read: How Supposed Free-Market Theorists Destroyed Free-Market Theory. An excerpt:
The greatest lesson from the crisis that we haven’t yet learned is that “industry interests” and “free-market interests” are not the same. In fact, they are more like oil and water, as the industry profits most in the absence of true market competition. And so it should be no surprise that Wall Street has devoted itself to making contracts indecipherable, building boundless negotiating leverage and fighting for favorable breaks and regulation at every turn. What should be a surprise is that the same scoundrels that killed our markets (and also, mind you, wrecked the global economy and demanded taxpayer bailouts) have so ably sold themselves as natural heirs to von Hayek and Friedman — and that so many of us have let them.
Stay on it. Let your Congresspeople know that you care, and that you vote. (You do vote, right?) In an earlier post I explained that we have a “friend” who was a NY investment broker. He laughed as he explained his job to my husband two years ago, “I bundle up shit mortgages and resell them as prime investments to other banks.” Ha, ha! That’s pretty funny! He still has a house in the Hamptons. A second house. The first one is in a tony area of Manhattan. Some of my hard-working friends are struggling with no jobs and the threat of losing their houses. Not good. Yes, we need financial regulation. Without it, free-marketers will run us into the ground.
Oh the Scary, Scary Debt. Is Obama to Blame?
The Economist has put together an interactive graphic showing public debt worldwide. While it’s fun and colorful and interesting to play with, it’s also a visual illustration of the state of the world’s economies, especially all the developed countries with massive debt.
If you’re an African country (other than Zimbabwe, whose money is basically fictional) your per capita debt is quite low. Because if you live in an African country, you are receiving very few benefits from the government. And your country has no credit rating to finance a debt splurge. The developed nations, on the other hand, are credit maxed to the hilt. All of them, not just the US.
Obama Had Help
It seems that Obama, while he has made some unwise decisions like proposing a massively expensive healthcare overhaul during a nasty recession, or bailing out failed enterprises including auto companies and badly run banks like so much crack to crackheads, he is mostly the victim of bad timing. Republican antipathy toward Obama is misplaced for the most part. Every conversation I’ve witnessed degenerates into “Obama’s socialist policies are spending us into hell,” followed by, “Well, Bush caused the problem in the first place with an unnecessary war and no bank regulation.”
Truth is, both are accurate. Developed nations have been living like there’s an infinite tomorrow and no limits to what the great machine of capitalism can achieve. Our country is experiencing a massive let-down. For many, the bitterness is transparent. They thought the gravy train would eventually reach their lives. Now, the gravy’s gone and people are pissed.
Good News, Bad News on Economic Recovery
One bit of good news is that Americans are awesomely responsible when they need to be. According to the AP, the personal savings rate “fell steadily from 9.59 percent in the 1970s to 2.68 percent in the easy-money era from 2000 to 2008; from 2005 to 2007, it averaged 1.83 percent. Today, that trend is in reverse. From April to June, Americans’ personal savings rate was 5 percent, and it could go higher if the unemployment rate keeps rising.”
The bad news is that the machine needs capital to churn out GDP growth. Banks are keeping more and refusing to lend (good news for recovery, bad news for business and consumers) despite all those bailout dollars. And unemployment is creeping higher as a result.
Can the US Stay on Top?
One huge question when I look at all the debt represented in the graphic is to whom is all the debt owed? And of course, the answer is to each other, so what does that mean? Here’s where my understanding of global finance breaks down. Naively, I assume that it will all work itself out since everyone owes money to everyone else, therefore, can’t we all just call it roughly even? Fact is, the answer could be radically different. Maybe when all the debt is accounted for, new countries will be left at the top of the heap. Like China. Or India. And the US will be left struggling under a burden caused by too many years of fiscal irresponsibility.
This is where we need to take President Obama to task. Yes, he is the victim of bad timing. The bottom line is, blame can’t fix the economy and reduce the debt. Fiscal responsibility will. Our leaders need to rein in the spend-like-there’s-no-tomorrow habit. A weakness of democracy is the constant chasing after public popularity. When times call for painful policies, Congress and the President need to see past the short term pain and lack of popularity and do what’s right for the country. The country needs to stop expecting handouts and do its part, too.
And About that Healthcare Reform…
A final note, if healthcare reform really does have cost control as its main thrust, I’m for it. If healthcare reform has more coverage to more people as its goal, we can’t afford it. Right now, the message is that both goals are covered. I’m having trouble buying that.
Federal Spending: Simon Johnson, Plus Graphs on Stimulus, TARP, Bailouts
Boy, you think you’ve finally got a handle on how much money the federal government is tossing around — and then you take a look at these interactive graphs (Feds to the Rescue and Fiscal Stimulus Map)published in the Atlantic this month in an article entitled, The Fed’s Cash Machine. The graphs are awesome because they do exactly what visual aids are supposed to do: They give you an insight into the scale of the spending meant to pull the economy up from its massive nosedive. Warning: these graphics are upsetting in nature since they may represent the complete leveraging of our children’s and grandchildren’s futures in order to provide the current bankers, CEOs and shareholders with a cushion against their painful mistakes in corporate policy and investment strategies.
For an incisive view of the current US economic situation, I cannot recommend enough Simon Johnson’s Atlantic article entitled, The Quiet Coup. Johnson, a former chief economist for the IMF, lays it bare. In no uncertain terms, Johnson explains:
In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.
But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse.
More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.
And:
The conventional wisdom among the elite is still that the current slump “cannot be as bad as the Great Depression.” This view is wrong. What we face now could, in fact, be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances.
Will Obama become just another protector of the banking industry elites? Will the far Right wake up to the fact that Obama is not the enemy, and maybe Greenspan, Paulsen, and the Federal Reserve are? Tune in for more in the months to come.
Libertarians, Tea Parties, and Economic Plumbing
I’ve been on a zero-growth economics kick for some time now, but it’s led me down a few other related paths: the role of Libertarians, the co-opting of Tea Parties, and the need for patching all the “leaks” in our economic plumbing.
Libertarians
First, Libertarians. Free-marketeers are anti-regulation because they feel that government’s role in regulation is a disruptive mechanism in what should be a self-correcting system. I understand this and agree, to some extent, for the reason I explained in this post. I could never be a true Libertarian because I’m big on wealth redistribution. To the poor and the weak, no less. The problem I have is that the current system favors the wealthy so that they are protected against risk. All those bank bailouts — instead of homeowner bailouts — are a clear indicator that the Fed favors saving the system from the top of the pyramid. As David Harvey points out in this most acute assessment of the current situation, the government could have worked to establish a corporation to buy troubled mortgages from homeowners:
DAVID HARVEY: I would take a lot of that [bailout] money, and I would put it into some kind of a national reconstruction corporation. And I would say, “Look, your first duty is to take care of the foreclosure crisis and the people who have been foreclosed upon. So go into cities like Cleveland and so on that have been devastated, and go into sort of areas in California and so on and take care of the foreclosure crisis.”
AMY GOODMAN: How would you do that?
DAVID HARVEY: Well, I think one of the ways you could do that is to start to buy out all of those houses that are about to be foreclosed on and put them into some kind of, I don’t know, municipal housing association or some collective form of that kind, and then allow people to remain in those houses, even though they’re no longer necessarily owners. So the ownership rights would shift.
Libertarians hated bailouts and wouldn’t have approved of bailing out anyone. Supposedly near to Libertarians on the political spectrum are right-wing Republicans, which brings me to Tea Parties…
Tea Parties
Sadly, the initial urge to protest against the bailouts was probably the voice of the regular citizens who objected to the government bailing out that top tier, the bankers who are already ridiculously rich. But the media machines (also corporations) realized this was a flaming fear-mongering opportunity to generate the type of noise that brings in viewers. So, they co-opted the tea parties and turned them into anti-Obama hate parties. It’s really a shame because our federal government could use some push-back for siding so blatantly with wealthy elites. We do need a citizen movement to rein in the power of the federal government. and especially, of Wall Street. Another quote from David Harvey:
Finance controls both the creation of housing, the production of housing, and also its consumption. You lend money to the developers. They go in and gentrify a neighborhood. You lend them money to the people who are going to occupy it. And even if they don’t have—you’ve got to find that market for the gentrification once that process goes on. And so, the connection there in this, the financial operators are working on both ends of this game
David Harvey calls himself a Marxist Geographer, which sounds a little nonsensical, but the man makes some good points simply by looking at things from an outsider’s perspective. And now, for my final gripe of the day, economic plumbing.
Economic Regulation: Patch the Leaks, Stop the Siphoning
Zero-growth economics has no current working model other than communism. Communism is unrealistic, often really ugly. Huge problem with sharing and our competitive nature or something, eh? But we’ve reached the point where we need to stop consuming, so… can we have growth without consumption? Can we have a .05% growth rate and still have a working system? Is a no-growth system possible with a burgeoning global population? Hmmm, lots of questions regarding viability.
In the meantime it would be great to at least improve our current form of mixed capitalism to ensure stability. If you’d like to see our system support jobs, keep our savings safe, and support homeownership again, we need to close up the places in our economy where investors, traders, and hedge-fund managers live: shadow banking, short-selling, currency trading, credit-default swaps, etc. I do not have deep knowledge of how these things work, but I think I understand that these areas of finance and investment are forms of creating wealth where none actually exists. This creation of false wealth devalues the real wealth of labor and goods, in essence, sucking the health out of our system. The trouble with too much financial liberty, ala Libertarians and strict free market capitalism, is that some jerk always figures out how to game the system and screws it up for the rest of us. Sometimes, like, say since Glass-Steagle was repealed, it’s a whole industry of jerks.
Hence the need for industry regulation. Adam Smith’s invisible hand is just too simple a metaphor. What we need is an even more ridiculous metaphor. Plumbing! Money travels through pipes, yeah. And the pipes leak, see? And then the leak grows into a big puddle and fails to… uh… trickle down. And then a bunch of parasites start to live in the puddle. I could go on and on! But hey, you get the idea. Clean pipes, clear channels with observable paths, a fixed, closed system that’s extensible, and begins at the source: real, actual goods and services. True capital.
Rabid Republicans Just Don’t Get It
While I fully understand that some people are confused and scared that the recession came on so suddenly and has been so drastic, I am mystified by the bizarre extremes some Fox News Republicans are approaching. The loony Glenn Beck has now made an all out call for “Tea Party” protests where, apparently, barely educated, book-burning idiots meet in bars to protest…. uh… what exactly??? (Video of one meeting here.)
There’s some kind of massive disconnect between Republicans who claim to support a free-market economy and those same Republicans who don’t realize that their worldview supported the investment bankers and hedge fund owners who broke ZERO laws in the latest financial meltdown — because under those same unregulated free trade laws, all that over-leveraging and super greedy profit-raiding isn’t illegal.
So now that evil old Obama is in power, he’s a socialist. Are these same rabid people proposing some solution other than “teabagging”? These people clearly do not understand that the government redistributes wealth for the common good ever since it’s inception.
I am less than comfortable with the bailouts, since I feel that the Federal Reserve and fractional reserve banking could use a serious shakedown. I don’t like the fact that, from my middle-income position, it looks an awful lot like those bailouts are all about political “friends” covering the asses of their banking “friends.” All in the name of free trade. These Fox News fools would rather starve than give undeserved money to poor people or immigrants while giving gobs of cash to bankers is only wrong once the godless Obama started doing it. Bush and Paulsen couldn’t help it. They were forced to do something to help the citizens. But Obama? He’s definitely trying to make the country communist. Obama is practically the anti-Christ.
Yeah, you go on ahead thinking that way. Me? I can’t believe what a good president Obama is. I still wish we had a deeper democracy with less wealth disparity and a smaller federal government, but Obama is just doing so much right.
For more Republican crazy, see John Stewart…
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