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.
Obama Dissed, Volcker Speaks Out Against Bankers Gone Wild
If anything about the financial crisis made you beet-red angry, then you must read Simon Johnson. Johnson is a former chief economist for the International Monetary Fund who wrote one of the best pieces on the financial crisis in print, the Quiet Coup. This week he urges people to pass on the message of Paul Volcker, former head of the Fed Reserve (before Greenspan), and now the head of Obama’s Economic Recovery Advisory Board.
Obama met this week with the heads of the major banks in an attempt to discuss regulation and the return of stability to the financial system. Guess who decided to attend the meeting with the President of the Free World only by phone? If you guessed Lloyd C. Blankfein, the chief executive of Goldman Sachs; John J. Mack, chairman of Morgan Stanley; and Richard D. Parsons, chairman of Citigroup you got it right. (Thanks guys, cause that shows how much you appreciated the use of all our taxpayer dollars!!)
The meeting continued with discussions about executive compensation, regulation, and making more loans available to small business. From the NY Times:
…the banks are seeking to restore executive pay to high levels and asserting that the government’s demand that they hold bigger financial buffers against possible losses makes it hard for them to issue more loans. During the hourlong meeting in the Roosevelt Room of the White House, Mr. Obama prodded the executives to stop fighting the regulation legislation intended to deal with the problems that led to the financial crisis”
Paul Volcker was one of the few outspoken critics of the unprecedented response by the Federal Reserve in the financial crisis. Far oversimplified, he did not agree that it was a good idea to bail out failing banks at all.
After President Obama’s meeting with the top banking executives, Volcker had this to say (emphasis added):
Every day I hear financial leaders saying that they are necessary and desirable, they are wonderful and they are God’s work. Has there been one financial leader to stand out and say that maybe this is excessive and that maybe we should get together privately to think about some restraint?
I hear about these wonderful innovations in the financial markets, and they sure as hell need a lot of innovation. I can tell you of two—credit-default swaps and collateralized debt obligations—which took us right to the brink of disaster. Were they wonderful innovations that we want to create more of? [...] Wake up, gentlemen. I can only say that your response is inadequate. I wish that somebody would give me some shred of neutral evidence about the relationship between financial innovation recently and the growth of the economy, just one shred of information.
Paul Volcker and Simon Johnson for the win.
Confessions of a Liberal
It’s tough to be a progressive these days, really tough. When Bush was sauntering around the world, cocky and ignorant (dangerous combo), life was easy. We could rail on fundamental religion, bemoan aggressive US foreign policy, argue for more funding of all the take-better-care-of-the-people programs because back then, at least we weren’t broke.
But like so many Americans, massive debt does not fly with me. It doesn’t turn me into a Republican, I’d still rather see more money going to inner cities than to buying Israel, but it does bring out the conservative STFU mentality (as in, “Times are tough? Too bad. STFU and quit whining.”) Now all that’s left to debate is who needs to STFU over what. I’ll give you this at the get-go: Liberals need to STFU about expanding social programs in a time of scarcity, but then, that’s tough when the bankers are rolling in swine flu shots and bonuses.
Healthcare is simple, really. Drug companies? STFU and deal with the competition that the rest of us have been dealing with. All that overseas cheap labor that everyone from manufacturers to tech workers have had to compete against? Yes, YOU my big fat US corporations, can compete against cheap drugs from Canada just like the rest of us have had to deal. This gets complicated since our man Obama has apparently caved massively on this issue. Aging populations whining over their Medicare benefits getting trimmed? STFU, because we’re your kids and grandkids, remember?? We are going to inherit the debt you are insisting upon every time you refuse to allow Medicare coverage to be reeled in. Do I support government funded healthcare for the elderly? Absolutely. But yes, it does need to be rationed. We ration our own money every day.
Wall Street needs to STFU. All the newly converted, anti-Obama faux-Libertarians need to STFU. Why? Because (cue overarching Liberal premise) money begets money and money protects money and we have a tacit agreement in the US that we’ll try to keep equal opportunity alive by supporting some form of income wealth redistribution. If we didn’t have a mixed economy we’d end up back where we started: feudal lords and fiefdoms. Goldman Sachs is a feudal lord, you are a peon. Don’t delude yourself that it’s any different. Regulation ensures that these players stick to the rules of fair play. Have you heard the arguments from investment bankers? That regulations “curb innovation”?? You can call CDOs “instruments” but keep in mind, these are not actual products. They’re pyramid schemes. Not my definition of innovation.
So, enough with the STFU. I am aware, painfully aware, that I also could use to STFU. And I have. No posts for months now. Because Obama has not been the great fixer he set out to be, and it’s taken some time to sort out the complexity of going from a righteous progressive during the Bush era, to being a disillusioned progressive today.
If there’s one thing I’m certain of it’s this (and then I really will STFU): the parties, Dems and Repubs, are irrelevant. Easy answers do not lie on either side of the fence. Times are so complex that a massive realignment and reshuffling seems in order. My hope is that pragmatism rules the day.
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.
-
-
About
Welcome to duh pookie where we work hard to bring you sparkly new thoughts.
-
- RSS Feed
-
Visit Political Voices of Women Community
