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May 07, 2009
American oligarchy-8: An update
I wrote a long series recently on the oligarchy in America, and since then came across some good articles that I thought others might enjoy.
Matt Taibbi reflects on the flip side of a society that tolerates an oligarchy, which is the peasant mentality that prevents people from seeing who their real enemies are and whose anger can be easily misdirected.
Actual rich people can’t ever be the target. It’s a classic peasant mentality: going into fits of groveling and bowing whenever the master’s carriage rides by, then fuming against the Turks in Crimea or the Jews in the Pale or whoever after spending fifteen hard hours in the fields.
Meanwhile Glenn Greenwald further elaborates on how the oligarchy operates.
[Michael] Paese went from Chairman [Barney] Frank's office to be the top lobbyist at Goldman, and shortly before that, Goldman dispatched Paese's predecessor, close Tom Daschle associate Mark Patterson, to be Chief of Staff to Treasury Secretary Tim Geithner, himself a protege of former Goldman CEO Robert Rubin and a virtually wholly owned subsidiary of the banking industry. That's all part of what Desmond Lachman -- American Enterprise Institute fellow, former chief emerging market strategist at Salomon Smith Barney and top IMF official (no socialist he) -- recently described as "Goldman Sachs's seeming lock on high-level U.S. Treasury jobs."
Meanwhile, the above-linked Huffington Post article which reported on [Senator Dick] Durbin's comments [that "The banks -- hard to believe in a time when we're facing a banking crisis that many of the banks created -- are still the most powerful lobby on Capitol Hill. And they frankly own the place."] also notes Sen. Evan Bayh's previously-reported central role on behalf of the bankers in blocking legislation, hated by the banking industry, to allow bankruptcy judges to alter the terms of mortgages so that families can stay in their homes.
And that's not all. As the Wall Street Journal reports (via Washington Monthly):
The Federal Reserve Bank of New York shaped Washington's response to the financial crisis late last year, which buoyed Goldman Sachs Group Inc. and other Wall Street firms. Goldman received speedy approval to become a bank holding company in September and a $10 billion capital injection soon after.
During that time, the New York Fed's chairman, Stephen Friedman, sat on Goldman's board and had a large holding in Goldman stock, which because of Goldman's new status as a bank holding company was a violation of Federal Reserve policy.
The New York Fed asked for a waiver, which, after about 2 1/2 months, the Fed granted. While it was weighing the request, Mr. Friedman bought 37,300 more Goldman shares in December. They've since risen $1.7 million in value. (...)
Mr. Friedman, who once ran Goldman, says none of these events involved any conflicts. He says his job as chairman of the New York Fed isn't a policy-making one, that he didn't consider his purchases of more Goldman shares to conflict with Fed policy, and bought shares because they were very cheap.
Conflict of interest means nothing to the members of the oligarchy because they really think they own the country and the rules that apply to you and me are irrelevant to them. You know you are living in an oligarchy when the very rich get into fits of aggrieved rage when even the tiniest of their privileges are taken away. Here are some reactions from Wall Street executives, as reported in a fascinating article in New York magazine.
"No offense to Middle America, but if someone went to Columbia or Wharton, [even if] their company is a fumbling, mismanaged bank, why should they all of a sudden be paid the same as the guy down the block who delivers restaurant supplies for Sysco out of a huge, shiny truck?" e-mails an irate Citigroup executive to a colleague.
"I'm not giving to charity this year!" one hedge-fund analyst shouts into the phone, when I ask about Obama's planned tax increases. "When people ask me for money, I tell them, 'If you want me to give you money, send a letter to my senator asking for my taxes to be lowered.' I feel so much less generous right now."
You should read the whole article. The petulant sense of entitlement, their immense sense of self-importance, and their contempt for everyone else, is astounding. They really do live in a different world from you and me.
POST SCRIPT: The Onion on Trekkies reaction to new Star Trek film
Trekkies Bash New Star Trek Film As 'Fun, Watchable'
April 24, 2009
American oligarchy-7: What needs to be done
(For previous posts in this series, see here.)
So where does Barack Obama fit into this picture? We saw him strike various populist themes during the campaign. But it should be clear from the people he has surrounded himself with on economic policy that he too is completely subservient to Wall Street interests. In fact, populist and supposedly liberal Democratic politicians like Bill Clinton and Barack Obama are far more useful to Wall Street in many ways, because they hide their subservience to Wall Street better. Liberal watchdogs tend to let down their guard and thus allow these politicians to give away the store in ways that Republicans, with their naked greed, would find hard to get away with.
For example, we saw how Bush's dangerous plans to privatize Social Security (which was highly desired by Wall Street because it would have directed a huge gusher of money their way to gamble with) were stymied by strong popular opposition. We need to be equally vigilant when Obama talks of 'reforming' Social Security to make sure that he is not trying to achieve the same results using different language. It seems already clear that Obama's health care reform plans are aimed at further enriching the parasitic health insurance industry, by pushing for universal coverage while not allowing the single-payer option to be considered.
Glenn Greenwald points out that while Obama has talked a good populist game against Wall Street, he has at the same time steadily subverted any real attempts to curtail its power and perks.
It was Obama, in the wake of various scandals over profligate spending by TARP firms, who pretended to ride the wave of populist anger and to lead the way in demanding limits on compensation. And ever since his flamboyant announcement, Obama -- adopting the same approach that seems to drive him in most other areas -- has taken one step after the next to gut and render irrelevant the very compensation limits he publicly pretended to champion (thereafter dishonestly blaming Chris Dodd for doing so and virtually destroying Dodd's political career). And the winners -- as always -- are the same Wall St. firms that caused the crisis in the first place while enriching and otherwise co-opting the very individuals Obama chose to be his top financial officials.
Worse still, what is happening here is an exact analog to what is happening in the realm of Bush war crimes -- the Obama administration's first priority is to protect the wrongdoers and criminals by ensuring that the criminality remains secret.
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As much as he campaigned against anything, Obama railed against precisely this sort of incestuous, profoundly corrupt control by narrow private interests of the Government, yet he has chosen to empower the very individuals who most embody that corruption.
This may be disillusioning for those who saw Obama as the knight in shining armor riding in to Washington to usher in a new era of clean government. But the signs were there long ago that Obama was hopelessly enmeshed in the same networks of influence peddlers as the previous administrations, and I warned back in February 2008 that we should not expect too much from him except on a few social issues.
Ken Silverstein wrote a prophetic article titled Barack Obama Inc.: The birth of a Washington machine way back in the November 2006 issue of Harper's magazine about Obama's rapidly growing links to Wall Street.
Yet it is also startling to see how quickly Obama's senatorship has been woven into the web of institutionalized influence-trading that afflicts official Washington. He quickly established a political machine funded and run by a standard Beltway group of lobbyists, P.R. consultants, and hangers-on. For the staff post of policy director he hired Karen Kornbluh, a senior aide to Robert Rubin when the latter, as head of the Treasury Department under Bill Clinton, was a chief advocate for NAFTA and other free-trade policies that decimated the nation's manufacturing sector (and the organized labor wing of the Democratic Party). Obama's top contributors are corporate law and lobbying firms (Kirkland & Ellis and Skadden, Arps, where four attorneys are fund-raisers for Obama as well as donors), Wall Street financial houses (Goldman Sachs and JPMorgan Chase), and big Chicago interests (Henry Crown and Company, an investment firm that has stakes in industries ranging from telecommunications to defense).
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[Mike] Williams [vice president for legislative affairs at The Bond Market Association that represents Wall Street firms] subsequently set up a conference call between Obama and a group of financial-industry lobbyists. That, too, went well, and in June of 2004, Williams helped organize "a little fund-raiser" for Obama at The Bond Market Association. "It wasn't just the financial community. There was a broad cross-section," he said of the 200 or so people who turned out. "There was overwhelming support, not just people from associations giving $2,000 but from individuals who just wanted to meet him, giving smaller contributions."
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It's not always clear what Obama's financial backers want, but it seems safe to conclude that his campaign contributors are not interested merely in clean government and political reform. And although Obama is by no means a mouthpiece for his funders, it appears that he's not entirely indifferent to their desires either.Consider the case of Illinois-based Exelon Corporation, the nation's leading nuclear-power-plant operator. The firm is Obama's fourth largest patron, having donated a total of $74,350 to his campaigns. During debate on the 2005 energy bill, Obama helped to vote down an amendment that would have killed vast loan guarantees for power-plant operators to develop new energy projects. The loan guarantees were called "one of the worst provisions in this massive piece of legislation" by Taxpayers for Common Sense and Citizens Against Government Waste; the public will not only pay millions of dollars in loan costs but will risk losing billions of dollars if the companies default.
In one of his earliest votes, Obama joined a bloc of mostly conservative and moderate Senate Democrats who helped pass a G.O.P.-driven class-action "reform" bill. The bill had been long sought by a coalition of business groups and was lobbied for aggressively by financial firms, which constitute Obama's second biggest single bloc of donors.
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All of this has forged a political culture that is intrinsically hostile to reform. On condition of anonymity, one Washington lobbyist I spoke with was willing to point out the obvious: that big donors would not be helping out Obama if they didn't see him as a "player." The lobbyist added: "What's the dollar value of a starry-eyed idealist?""
So what can we, the people, do? We must not abandon the electoral process because of disgust at the way the rules have been rigged against us. People matter, candidates matter, and elections matter. On balance, it is better to have an elected official sympathetic to your position than one who is hostile. But we have to stop putting our trust in people, thinking that what matters is getting the "right" people, "our" people, in power, and that then they will do the right thing, at least from our point of view. We have to stop thinking that the labels 'liberal' and 'conservative', Democrat and Republican, signify anything other than where a candidate stands on a few social issues. We should stop spending so much time trying to figure out who the 'good' people are and who the 'bad' people are and instead focus on what they actually do.
Strong moneyed forces will constantly try to get elected officials to act against the interests of the public. Hence it is more important to look at the actions of elected officials, to support and praise those that are good and not hesitate to criticize, even strongly, actions that are wrong, irrespective of party or ideological labels, whether they are done by "our" people or "their" people. It means paying attention to and supporting those watchdog groups that keep track of important issues.
This means not getting distracted by the sideshows put on for our benefit by the media and political leaders, usually around social issues. Those are all smoke and mirrors. Right now there is genuine and widespread anger about what people see as the looting of the public by powerful interests. This is dangerous for the oligarchy and there will be attempts to deflect this anger away from the real culprits. The silly tea parties promoted by Fox News (a reliable water carrier for the oligarchy) are one such attempt at distraction, trying to make people think that raising the marginal tax rate from 36% to 39.6% and thus raising the taxes of those earning above $250,000 is the problem. As a result we had the bizarre spectacle of people being persuaded to protest that their taxes were being lowered, unless the people attending the tea parties constituted the top 2-3% of income earners.
In the case of financial issues, there is only one weapon that the public has to stop the relentless looting of the public treasury, and that is to be loud and vocal and demand that elected officials, even if (and especially if) we see them as "our" people, act in the public interest.
POST SCRIPT: Still waiting for Mr. Smith
In the classic film Mr. Smith Goes to Washington, James Stewart plays an idealistic person who goes to Washington as a US Senator and confronts the corruption he finds there. Sadly, Barack Obama is no Mr. Smith.
April 23, 2009
American oligarchy-6: The victories of the oligarchy
(For previous posts in this series, see here.)
In his article in the May 2009 issue of The Atlantic magazine titled The Quiet Coup, Former chief economist of the IMF Simon Johnson lists the fruits of the collusion between both political parties and Wall Street interests.
From this confluence of campaign finance, personal connections, and ideology there flowed, in just the past decade, a river of deregulatory policies that is, in hindsight, astonishing:
- insistence on free movement of capital across borders;
- the repeal of Depression-era regulations separating commercial and investment banking;
- a congressional ban on the regulation of credit-default swaps;
- major increases in the amount of leverage allowed to investment banks;
- a light (dare I say invisible?) hand at the Securities and Exchange Commission in its regulatory enforcement;
- an international agreement to allow banks to measure their own riskiness;
- and an intentional failure to update regulations so as to keep up with the tremendous pace of financial innovation.
Just examine that list for a moment. Did you hear about any of those important actions while they were being carried out? Were there front page news reports and commentary on them? Loud arguments? Highly publicized congressional hearings? Fierce partisan debates? When all that was going on, was there any attempt at informing the public of the potential consequences of these wide-ranging decisions? Of course not. The chances are that during those times our attention was focused on Monica Lewinsky, Terri Schiavo, gay marriage, Chandra Levy, Valerie Plame, and the like. This is why observing politics has to be like watching a magician. If you look at what your attention is being drawn to, you are missing what is actually happening. The real action takes place in obscure committee hearings, at the regulatory bodies, in private meetings between members of government and the heads of the financial firms, over lunch and dinner and on golf courses.
Did you notice how in the fall of 2008, as we lurched daily from crisis to crisis as one big firm after another like Merrill Lynch and Lehman Brothers fell, we were presented by the Treasury and Federal Reserve officials with 'solutions' to the problems that had been worked out seemingly overnight involving the taxpayer-subsidized purchase of one major institution by another that involved hundreds of billions of taxpayer dollars? The only way that consensus could be reached so quickly and smoothly on such major actions was if there had always been collusion between the government and the financial firms involved and they saw their interests as one and the same.
Simon Johnson continues:
Throughout the crisis, the government has taken extreme care not to upset the interests of the financial institutions, or to question the basic outlines of the system that got us here. In September 2008, Henry Paulson asked Congress for $700 billion to buy toxic assets from banks, with no strings attached and no judicial review of his purchase decisions. Many observers suspected that the purpose was to overpay for those assets and thereby take the problem off the banks’ hands—indeed, that is the only way that buying toxic assets would have helped anything. Perhaps because there was no way to make such a blatant subsidy politically acceptable, that plan was shelved.
Instead, the money was used to recapitalize banks, buying shares in them on terms that were grossly favorable to the banks themselves. As the crisis has deepened and financial institutions have needed more help, the government has gotten more and more creative in figuring out ways to provide banks with subsidies that are too complex for the general public to understand.
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This latest plan—which is likely to provide cheap loans to hedge funds and others so that they can buy distressed bank assets at relatively high prices—has been heavily influenced by the financial sector, and Treasury has made no secret of that.
Johnson says that the same remedies that the IMF routinely gives to developing countries in similar financial crisis should also apply to the US. But they are not, because the American oligarchy is immune to the pressure that the IMF can put on oligarchies in other countries. The American oligarchy is not responsible to anyone.
As the IMF understands (and as the U.S. government itself has insisted to multiple emerging-market countries in the past), the most direct way to do this is nationalization… Nationalization would not imply permanent state ownership. The IMF’s advice would be, essentially: scale up the standard Federal Deposit Insurance Corporation process.
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This may seem like strong medicine. But in fact, while necessary, it is insufficient.
Then Johnson gets to the crux of the problem and what must be done. When reading it, remember that Johnson is a centrist technocrat, not some ideologue, and his understanding comes from dealing with many countries that have gone through financial crises.
The second problem the U.S. faces—the power of the oligarchy—is just as important as the immediate crisis of lending. And the advice from the IMF on this front would again be simple: break the oligarchy. (my italics)
But the IMF is not going to give this advice to the US because the US oligarchy, through the US government, pretty much dictates IMF policies.
The only way that the oligarchy will be broken is if the public demands it.
Next: Barack Obama's role
POST SCRIPT: God as CEO
When you look at god's actions as revealed in the Bible, you realize that he is not very good at strategic long-range planning, preferring to go for cheap and popular gimmicks. But not to worry! His apologists know how to explain away all the absurdities and contradictions.
(Thanks to Machines Like Us.)
April 22, 2009
American oligarchy-5: How Wall Street builds its power
(For previous posts in this series, see here.)
In the previous posts, we saw how people with connections to big Wall Street firms like Goldman Sachs are everywhere in government, especially in key economic policy-making positions, so that whichever party wins, their interests are protected and advanced.
In his article in the May 2009 issue of The Atlantic magazine titled The Quiet Coup, Simon Johnson explains how firms like Goldman Sachs have carefully cultivated their power structure.
[T]he American financial industry gained political power by amassing a kind of cultural capital—a belief system. Once, perhaps, what was good for General Motors was good for the country. Over the past decade, the attitude took hold that what was good for Wall Street was good for the country. The banking-and-securities industry has become one of the top contributors to political campaigns, but at the peak of its influence, it did not have to buy favors the way, for example, the tobacco companies or military contractors might have to. Instead, it benefited from the fact that Washington insiders already believed that large financial institutions and free-flowing capital markets were crucial to America’s position in the world.
One channel of influence was, of course, the flow of individuals between Wall Street and Washington. Robert Rubin, once the co-chairman of Goldman Sachs, served in Washington as Treasury secretary under Clinton, and later became chairman of Citigroup’s executive committee. Henry Paulson, CEO of Goldman Sachs during the long boom, became Treasury secretary under George W.Bush. John Snow, Paulson’s predecessor, left to become chairman of Cerberus Capital Management, a large private-equity firm that also counts Dan Quayle among its executives. Alan Greenspan, after leaving the Federal Reserve, became a consultant to Pimco, perhaps the biggest player in international bond markets.
These personal connections were multiplied many times over at the lower levels of the past three presidential administrations, strengthening the ties between Washington and Wall Street. It has become something of a tradition for Goldman Sachs employees to go into public service after they leave the firm. The flow of Goldman alumni—including Jon Corzine, now the governor of New Jersey, along with Rubin and Paulson—not only placed people with Wall Street’s worldview in the halls of power; it also helped create an image of Goldman (inside the Beltway, at least) as an institution that was itself almost a form of public service.
Recall that once in a while, a maverick like Brooksley Born gets into a position such as head of the Commodity Futures Trading Commission, where she could be a thorn in the side of the oligarchy. I described how the oligarchy was able to marginalize her and neutralize her efforts and force her to leave. To make sure that that does not happen again, they then put their own people in that slot. As Glenn Greenwald points out:
More amazingly still, the CFTC, headed back then by Born, is now headed by Obama appointee Gary Gensler, a former Goldman Sachs executive (naturally) who was as instrumental as anyone in blocking any regulations of those derivative markets (and then enriched himself by feeding on those unregulated markets).
Just think about how this works. People like Rubin, Summers and Gensler shuffle back and forth from the public to the private sector and back again, repeatedly switching places with their GOP counterparts in this endless public/private sector looting. When in government, they ensure that the laws and regulations are written to redound directly to the benefit of a handful of Wall St. firms, literally abolishing all safeguards and allowing them to pillage and steal. Then, when out of government, they return to those very firms and collect millions upon millions of dollars, profits made possible by the laws and regulations they implemented when in government. Then, when their party returns to power, they return back to government, where they continue to use their influence to ensure that the oligarchical circle that rewards them so massively is protected and advanced. This corruption is so tawdry and transparent -- and it has fueled and continues to fuel a fraud so enormous and destructive as to be unprecedented in both size and audacity -- that it is mystifying that it is not provoking more mass public rage.
And of course Obama nominee Gensler was confirmed in his post without a single dissenting vote in the Senate Agriculture Committee, a perfect example of bipartisan subservience to Goldman Sachs and Wall Street.
POST SCRIPT: Stephen Colbert's anti-gay marriage ad
A group called the National Organization for Marriage has put out an ad opposing gay marriage. Stephen Colbert thinks that ad doesn't go far enough and ups the ante.
| The Colbert Report | Mon - Thurs 11:30pm / 10:30c | |||
| The Colbert Coalition's Anti-Gay Marriage Ad | ||||
| ||||
April 21, 2009
American oligarchy-4: How oligarchies work
(For previous posts in this series, see here.)
Simon Johnson is a professor at MIT's Sloan School of Management. He used to be the chief economist at the International Monetary Fund and in that role had to deal with many countries in financial crisis and had plenty of experience with oligarchies. He is hardly an ideologue. In fact, he calls himself a 'centrist technocrat', which is the kind of person that these international financial institutions usually have in their technical divisions. But yet he has no hesitation in identifying the current financial crisis in the US as caused by the same kind of oligarchies that he encountered in his dealings with developing countries in crisis. In a must-read article titled The Quiet Coup that appeared in the May 2009 issue of The Atlantic magazine, he describes how oligarchies work and how they end up ruining the economies of countries.
The problem is that because these oligarchies exert such enormous influence and power over their governments, they feel that normal market forces and business constraints that restrain lesser players do not apply to them. Hence they take much greater risks and when disaster strikes, as it inevitably will, they then turn to their friends and clients in the government to bail them out. This is exactly what has happened in the US.
Johnson says that when a crisis hits, countries come to the IMF for assistance. While the proximate causes of each country's crisis differs, the ultimate causes all have a depressingly similar pattern that could be traced to the existence of an oligarchy. He says that while the economic solutions to each crisis are not hard to figure out, the biggest obstacle to recovery is almost invariably the politics of countries in crisis.
Typically, these countries are in a desperate economic situation for one simple reason—the powerful elites within them overreached in good times and took too many risks. Emerging-market governments and their private-sector allies commonly form a tight-knit—and, most of the time, genteel—oligarchy, running the country rather like a profit-seeking company in which they are the controlling shareholders.
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Squeezing the oligarchs, though, is seldom the strategy of choice among emerging-market governments. Quite the contrary: at the outset of the crisis, the oligarchs are usually among the first to get extra help from the government, such as preferential access to foreign currency, or maybe a nice tax break, or—here’s a classic Kremlin bailout technique—the assumption of private debt obligations by the government. Under duress, generosity toward old friends takes many innovative forms.
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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)… 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.
He says that while people can identify various proximate causes for the collapse, "these various policies—lightweight regulation, cheap money, the unwritten Chinese-American economic alliance, the promotion of homeownership—had something in common. Even though some are traditionally associated with Democrats and some with Republicans, they all benefited the financial sector. Policy changes that might have forestalled the crisis but would have limited the financial sector’s profits—such as Brooksley Born’s now-famous attempts to regulate credit-default swaps at the Commodity Futures Trading Commission, in 1998—were ignored or swept aside."
Ultimately, it comes down to power. Who controls the government? The financial oligarchy in the US started running the country during the Reagan years and have continued to do so throughout all the administrations since. They prefer to do their work quietly behind the scenes while public attention is focused elsewhere such as on abortion or gay marriage or immigration or other hot-button social issues.
What the current crisis has done is threaten to rip the veil and expose how the government is really run and for whose benefit. When that is exposed, the people can rise up in angry protest so it becomes imperative to close the curtain again, to say that the problem is over, things are back to normal, nothing to see here, move along now. This is why they are rushing through major policies involving trillions of dollars practically overnight, so that they can claim that everything is back to normal. What they want to avoid is a close examination of what caused the crisis and what steps should be taken to prevent future ones.
Part of this strategy is to distract people with other issues. So you will see a concerted effort to exaggerate foreign policy issues or even create absurd events like the recent silly tea parties to protest the rise in the marginal tax rates for the highest income to 39.6%, although the new tax polices affects only raises the taxes of people earning over $250,000. Fortunately, the religious right or Christianist element in society seems to be in decline so the usual reliable standbys for distraction such as homosexuality, abortion, stem cells, and the like do not seem to be effective. People seem to be too worried about retaining their own job and homes to care about these other things. Even the frenetic cheerleading by Fox News (a faithful servant of the oligarchy) was unable to whip up more than lukewarm interest in the tea parties.
What Simon Johnson says is that there is a quiet power struggle going on behind the scenes between the government and the financial oligarchy to see who runs the show. In an interview on Fresh Air, Johnson says that the big financial firms like Goldman Sachs and JP Morgan Chase are already chafing at the restrictions placed on them by virtue of having received funds under the TARP (Troubled Asset Relief Program), and have publicly announced that they want to prematurely pay it back, though they are not going to pay back the billions that were secretly channeled to them via AIG.
(Incidentally, it has just been revealed that Edward Liddy, the head of AIG when it did the secret channeling of billions to Goldman Sachs, has $3 million stock in Goldman Sachs stock, received as compensation for serving on Goldman's board before he moved to AIG in September 2008. We see that it is all a nice and cozy quid-pro-quo relationship. The phrase "conflict of interest" means nothing to these people. They see the role of the government as being to serve their personal interests and that of their companies.)
Johnson says that this is a test of power. If the government caves in and lets them get out from under TARP, it will mean that the oligarchy definitely is calling the shots. If the government can resist, then it means that people have a chance of regaining control.
I think Johnson is too sanguine to think that there is still a struggle for control between Wall Street and the government. I think that Wall Street won a long time ago and the real 'struggle', such as it is, is to find ways to once again hide their domination of the people elected to allegedly represent us.
POST SCRIPT: Trailer for 10 things I hate about commandments
April 20, 2009
American oligarchy-3: Welcome to the club
(For previous posts in this series, see here.)
It is not just Geithner who is a slave to Wall Street interests. Key economic advisor in the Obama administration Lawrence Summers, although he comes from academia, is also enmeshed in that world. In just 2008 alone, Summers received $5.2 million from the hedge fund firm D. E. Shaw. Mind you, he was still a full-time professor at Harvard at that time, so this was for just part-time work. (Jonathan Schwarz breaks down the links to all his financial dealings.)
Summers also received $135,000 as a speaking fee for two speeches given at Goldman Sachs, the company that has been, and continues to be, a huge beneficiary of the bailout. (Recall that the previous Treasury Secretary Henry Paulson and before that Robert Rubin also used to head that same firm). At that time, Summers was already heavily involved in the Democratic campaign and it was clear that he would be a major player in either the Obama or Clinton administration. So Goldman Sach was likely buying "insurance" or, as Glenn Greenwald says, paying an "advanced bribe", making sure that a friendly face would be in a major decision making position in the new Democratic administration, since they could not pay him once he joined the administration.
Here's another examination by David Sirota of the close-knit and like-minded people from both parties who control economic policy.
At the top is Lawrence Summers, the director of Obama's National Economic Council. As Bill Clinton's Treasury secretary in the late 1990s, Summers worked with his deputy, Tim Geithner (now Obama's Treasury secretary), and Clinton aide Rahm Emanuel (now Obama's chief of staff) to champion job-killing trade deals and deregulation that Obama Commerce Secretary-designate Judd Gregg helped shepherd through Congress as a Republican senator. Now, this pinstriped band of brothers is proposing a "cash for trash" scheme that would force the public to guarantee the financial industry's bad loans. It's another ploy "to hand taxpayer dollars to the banks through a variety of complex mechanisms," says economist Dean Baker—and noticeably absent is anything even resembling a "rival" voice inside the White House.
This financial oligarchy makes sure that those who are not with the program of letting the big financial firms have unfettered control over the economy get shut out of power. The story of Brooksley Born, former head of the Commodity Futures Trading Commission, is illustrative. She describes how her efforts in the 1990s to bring the wild derivative markets that caused the current crisis under regulation was vigorously opposed and defeated by a coalition of Alan Greenspan (then head of the Federal Reserve), then Treasury Secretary in the Clinton administration Robert Rubin (who used to head Goldman Sachs), and Lawrence Summers. Her story shows the bi-partisan nature of the protection given to Wall Street's interests.
As chairperson of the CFTC, Born advocated reining in the huge and growing market for financial derivatives. Derivatives get their name because the value is derived from fluctuations in, for example, interest rates or foreign exchange. They started out as ways for big corporations and banks to manage their risk across a range of investments. One type of derivative—known as a credit-default swap—has been a key contributor to the economy's recent unraveling.
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Back in the 1990s, however, Born's proposal stirred an almost visceral response from other regulators in the Clinton administration, as well as members of Congress and lobbyists. The economy was sailing along, and the growth of derivatives was considered a sign of American innovation and a symbol of the virtues of deregulation. The instruments were also a growing cash cow for the Wall Street firms that peddled them to eager takers.Ultimately, Greenspan and the other regulators foiled Born's efforts, and Congress took the extraordinary step of enacting legislation that prohibited her agency from taking any action. Born left government and returned to her private law practice in Washington. (my italics)
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Speaking out for the first time, Born says she takes no pleasure from the turn of events. She says she was just doing her job based on the evidence in front of her. Looking back, she laments what she says was the outsized influence of Wall Street lobbyists on the process, and the refusal of her fellow regulators, especially Greenspan, to discuss even modest reforms. "Recognizing the dangers . . . was not rocket science, but it was contrary to the conventional wisdom and certainly contrary to the economic interests of Wall Street at the moment," she says.
All this occurred during Bill Clinton's administration during which Republicans controlled both houses of Congress for most of the time. So the concept of 'divided government' applies only as long as Wall Street interests are not involved. We see that all these people from across the political spectrum, so-called conservatives and so-called liberals, Democrats and Republicans, united to give Wall Street a free hand by removing restrictions from the financial institutions and thus sowed the seeds of the current crisis, showing how the financial oligarchy maintains continuity even though political parties come and go.
Alan Greenspan was such a die-hard Ayn Rand devotee that he even told Bonds that he did not think there should be any laws against fraud because the market would take care of things. We saw how well that turned out. The problem is that in an oligarchic system as currently exists, market forces only apply to powerless people. When the markets turn against the big financial interests, they have the power and influence to get the government to use taxpayer money to bail them out. Oligarchies never lose unless there is a popular revolt.
POST SCRIPT: The need for strong oversight
Jon Stewart has an excellent two-part interview with Elizabeth Warren, chair of the Congressional Oversight Panel on TARP (Troubled Asset Relief Program), who has been charged with overseeing the current bailout.
Part 1 explains what is going on now and part 2 explains clearly how we got into this mess and what we need to do in the future.
Part 1:
| The Daily Show With Jon Stewart | M - Th 11p / 10c | |||
| Elizabeth Warren Pt. 1 | ||||
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Part 2:
| The Daily Show With Jon Stewart | M - Th 11p / 10c | |||
| Elizabeth Warren Pt. 2 | ||||
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My concern is that because Warren seems to be honest and smart, she may be seen as a thorn in the side of the oligarchy which will try to make her serve as the usual window dressing to make it look as if there is accountability when in reality there is none. It seems clear that she is already being slowly frozen out of the information loop by the Obama administration. I wonder how long it will be before she quits in frustration, like Brooksley Born.
April 17, 2009
American oligarchy-2: The fraud on the American people
(For previous posts in this series, see here.)
Obama's nominee to be chief performance officer, Nancy Killefer, had to withdraw her nomination following the revelation that she had a mere $946.69 lien on her property in 2005 for failure to pay taxes ($298 in unemployment compensation for household help, $48.69 in interest, and $600.00 in penalties.) This was a fairly trivial issue.
Health and Human Services nominee Tom Daschle had to also withdraw over the failure to pay a much larger amount of $140,000 in taxes but there was a faintly plausible case of ambiguity there. I was glad Daschle withdrew for a different reason, because he is completely enmeshed with all kinds of lobbying interests.
So why was Timothy Geithner able to beat his far more serious problems and become confirmed for the position of Treasury Secretary? Because Obama and the Democratic leadership wanted him badly enough, and so did the Republicans. Why? Because he will continue the practice of subordinating the interests of the US to the financial oligarchy. It is not hard to see why he was favored by Wall Street and thus secured his nomination fairly easily despite his tax problems.
This New York Times article relates how Geithner fought to protect the interests of the big banks during internal debates on how to handle the financial crisis. Economist Michael Hudson explains why the big Wall Street players wanted Geithner to succeed Paulson as Treasury Secretary. "[T]he Obama-Geithner recovery plan is basically an extension of the Bush-Paulson plan – yet more giveaways to financial insiders, with a view to concentrating the U.S. banking system into a cartel of just a few large banks."
The recent plan adopted by Geithner has the government putting up at least 85% of the money to buy these mortgage-backed assets of dubious value, with private investors putting up just 15%. If the assets rise in value, the profits are split 50-50. If the assets lose value, however, the government bears the brunt of the losses. So Wall Street gets the upside and the taxpayer gets the downside. Economist Michael Hudson calls it a scam and explains why this plan was greeted with such enthusiasm by the banking sector.
Suppose a bank is sitting on a $10 million package of collateralized debt obligations (CDOs) that was put together by, say, Countrywide out of junk mortgages. Given the high proportion of fraud (and a recent Fitch study found that every package it examined was rife with financial fraud), this package may be worth at most only $2 million as defaults loom on Alt-A "liars' loan" mortgages and subprime mortgages where the mortgage brokers also have lied in filling out the forms for hapless borrowers or witting operators taking out mortgages at far more than properties were worth and pocketing the excess.
The bank now offers $3 million to buy back this mortgage. What the hell, the more they bid, the more they get from the government. So why not bid $5 million. (In practice, friendly banks may bid for each other's junk CDOs.) The government – that is, the hapless FDIC – puts up 85 per cent of $5 million to buy this – namely, $4,250,000. The bank only needs to put up 15 per cent – namely, $750,000.
Here's the rip-off as I see it. For an outlay of $750,000, the bank rids its books of a mortgage worth $2 million, for which it receives $4,250,000. It gets twice as much as the junk is worth.
The more the banks holding junk mortgages pay for this toxic waste, the more the government will pay as part of its 85 per cent. So the strategy is to overpay, overpay, and overpay. Paying 15 per cent is a small price to pay for getting the government to put in 85 per cent to take the most toxic waste off your books.
Another economist Dean Baker explains the real purpose of these plans. "Mr. Geithner wants to use taxpayer dollars to keep bankrupt banks in business. In effect, he wants to tax teachers, fire fighters, and Joe the Plumber to protect the wealth of the banks' shareholders and to pay high salaries to their top executives."
Others economists have voiced their concerns. In an interview with Bill Moyers, William K. Black, a professor of economics and law with the University of Missouri, alleges that a massive fraud is being perpetrated on the American taxpayer. As Raw Story summarizes:
In an explosive interview on PBS' Bill Moyers Journal, William K. Black, a professor of economics and law with the University of Missouri, alleged that American banks and credit agencies conspired to create a system in which so-called "liars loans" could receive AAA ratings and zero oversight, amounting to a massive "fraud" at the epicenter of US finance.
But worse still, said Black, Timothy Geithner, President Barack Obama's Secretary of the Treasury, is currently engaged in a cover-up to keep the truth of America's financial insolvency from its citizens.
Black goes on to also describe other shenanigans.
Under Secretary Geithner and under Secretary Paulson before him... we took $5 billion dollars, for example, in U.S. taxpayer money. And sent it to a huge Swiss Bank called UBS. At the same time that that bank was defrauding the taxpayers of America. And we were bringing a criminal case against them. We eventually get them to pay a $780 million fine, but wait, we gave them $5 billion. So, the taxpayers of America paid the fine of a Swiss Bank. And why are we bailing out somebody who that is defrauding us?
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The Bush administration and now the Obama administration kept secret from us what was being done with AIG. AIG was being used secretly to bail out favored banks like UBS and like Goldman Sachs. Secretary Paulson's firm, that he had come from being CEO. It got the largest amount of money. $12.9 billion. And they didn't want us to know that. And it was only Congressional pressure, and not Congressional pressure, by the way, on Geithner, but Congressional pressure on AIG.
Geithner is just the symbol of the oligarchy. Bill Moyers concludes, and Black agrees, "that people in power, political power, and financial power, act in concert when their own behinds are in the ringer."
More on that in the next post.
POST SCRIPT: Our Goldman Sachs dominated oligarchy
| The Daily Show With Jon Stewart | M - Th 11p / 10c | |||
| Clusterfu#@k to the Poor House - Goldman Sachs' Connections | ||||
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April 16, 2009
American oligarchy
If there is one thing that the current financial crisis has revealed, it is the stranglehold that the big financial interests have on the American government. From the beginning it has been clear that the same interests that caused the financial crisis are the ones that control both the Bush and Obama administrations and that they are making sure that they are the ones who benefit most from the various high-cost "rescue" and "stimulus" packages that have been floated. Nowhere is this more clearly displayed that the way in which the Obama administration is slavishly adhering to satisfy the needs of the major financial interests on Wall Street.
This will be unwelcome news for those Obama fans who thought their candidate would be different. So far Barack Obama's administration seems to be acting consistently with the model that states that the US is run by a pro-war/pro-business one party oligarchy with two factions that differ only on some social issues.
Exhibit #1 is Timothy Geithner, the current Secretary of the Treasury. He was one of the many Obama nominees who had problems with their past tax payments. But Geither's case was the most serious because it was clear that he was not paying taxes in a manner that suggested willful deception. There is no way that he could not have known that he was doing something wrong by not paying his Social Security or Medicare taxes while he was at the International Monetary Fund, unless he is such a financial idiot that he should not be Treasury Secretary. The Wall Street Journal describes the problem:
As an international body, the IMF doesn't withhold taxes for U.S. citizens, and employees are responsible for paying their taxes. The IMF pays employees additional tax allowances to cover federal and state income taxes, and the employer's portion of payroll taxes.
Mr. Geithner prepared his own federal-tax returns during the first two years he worked at the IMF, 2001 and 2002, according to the Senate Finance Committee report.
"The IMF informs U.S. employees about their tax allowance and what it covers and doesn't cover -- and that includes paying your payroll taxes," said Michael Mussa, a former IMF chief economist, who is now at the Peterson Institute for International Economics. "The IMF doesn't leave this out."
An IMF booklet on taxes, which Mr. Geithner told the Senate panel he received, instructed employees that "you pay the employee's share of U.S. Social Security taxes."
Mr. Geithner's quarterly tax-allowance payments also included a statement of what the money was to be used for, and had an entry for "SE tax" -- meaning "self-employment" taxes. In a wrinkle in U.S. tax law, U.S. citizens at the IMF pay Social Security and Medicare taxes as if they were self-employed. Current and former IMF officials said that U.S. officials widely understood "SE tax" to mean payroll taxes."
I, like Geithner, do my own taxes and there is no way that you can do that without knowing what 'SE tax' means. I have been paying self-employment taxes (to cover Social Security and Medicare) every year on the small extra income I get from book royalties and consulting and speaking fees. It is quite simple and straightforward.
Current and former IMF officials said the fund provided numerous warnings to U.S. employees about payroll taxes. According to IMF documents released by the Senate Finance panel, Mr. Geithner regularly received information about his tax obligations.
Mr. Geithner didn't make any Social Security or Medicare tax payments on his income during the years he worked for the IMF, though he did pay income taxes. After the Internal Revenue Service audited him in 2006 and discovered the payroll-tax errors, Mr. Geithner corrected them for 2003 and 2004. Only after Mr. Obama picked him for Treasury secretary last fall did Mr. Geithner pay the Social Security and Medicare tax he owed for 2001 and 2002.
So even after being audited and having paid back taxes for two years, he did not pay for the other years even though he must have known that the same problem existed there. To me, this was such an egregious act that Geithner's nomination should have been rejected. But he was confirmed quite easily, which immediately indicated to me then that he was a faithful servant of the oligarchy and that he would faithfully serve Wall Street interests.
As veteran investigative reporters Don Bartlett and Jim Steele said :
The reason we said that Geithner’s was far more egregious is this. He signed a piece of paper acknowledging that he owed both taxes while he was employed by the IMF. He then collected the money from IMF to pay the taxes. Now, most of us, you know, the payroll taxes are withheld. We don’t get reimbursed for those taxes. It comes out of our own pocket. But Mr. Geithner not only signed a paper acknowledging he owed taxes, he collected money to pay the taxes and then didn’t pay them and pocketed the money. This is why it was far more egregious for him and why—you know, the New York Times demanded that Tom Daschle withdraw, and he did. But the same demand was not put on Mr. Geithner.
If this was a real two-party system, you would think that the Republicans would jump at this chance at embarrassing the incoming president by highlighting the faults of his important cabinet pick. But in a one-party oligarchy, it is the interests of the oligarchy that must be served first and Republicans know that.
A number of senators, including Republicans, continued to express their support for Mr. Geithner. "These are not the times to think in small political terms," said Sen. Lindsay Graham, a South Carolina Republican. "He has a great résumé."
Yes, he certainly does. A resume that screams that he will do Wall Street's bidding, and what's not to like about that?
POST SCRIPT: The other side of piracy
Johann Hari of the London Independent says there is another side to the pirate story that we are not being told.
In 1991, the government of Somalia collapsed. Its nine million people have been teetering on starvation ever since – and the ugliest forces in the Western world have seen this as a great opportunity to steal the country's food supply and dump our nuclear waste in their seas.
Yes: nuclear waste. As soon as the government was gone, mysterious European ships started appearing off the coast of Somalia, dumping vast barrels into the ocean. The coastal population began to sicken. At first they suffered strange rashes, nausea and malformed babies. Then, after the 2005 tsunami, hundreds of the dumped and leaking barrels washed up on shore. People began to suffer from radiation sickness, and more than 300 died.
Ahmedou Ould-Abdallah, the UN envoy to Somalia, tells me: "Somebody is dumping nuclear material here. There is also lead, and heavy metals such as cadmium and mercury – you name it."
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At the same time, other European ships have been looting Somalia's seas of their greatest resource: seafood. We have destroyed our own fish stocks by overexploitation – and now we have moved on to theirs. More than $300m-worth of tuna, shrimp, and lobster are being stolen every year by illegal trawlers. The local fishermen are now starving.
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This is the context in which the "pirates" have emerged. Somalian fishermen took speedboats to try to dissuade the dumpers and trawlers, or at least levy a "tax" on them. They call themselves the Volunteer Coastguard of Somalia – and ordinary Somalis agree. The independent Somalian news site WardheerNews found 70 per cent "strongly supported the piracy as a form of national defence".No, this doesn't make hostage-taking justifiable, and yes, some are clearly just gangsters – especially those who have held up World Food Programme supplies. But in a telephone interview, one of the pirate leaders, Sugule Ali: "We don't consider ourselves sea bandits. We consider sea bandits [to be] those who illegally fish and dump in our seas." William Scott would understand.
Did we expect starving Somalians to stand passively on their beaches, paddling in our toxic waste, and watch us snatch their fish to eat in restaurants in London and Paris and Rome?
The whole article is worth reading for its history of how pirates arose in the 17th century as a reaction to the extreme hardship and cruelties suffered by sailors in the merchant and regular navies of that time. Rather than being thought of as evildoers, they were initially seen by the general public as romantic heroes, rebels against oppression. Their transformation in the public mind into senseless and savage bandits was the result of a concerted propaganda campaign by the British government.