(Originally read a revised edition "Mortgaging Ireland: Financial Crisis & Socialist Resistance" published in the March 2011 issue of Monthly Review)
From Fenians to financiers: James Connolly and the Irish meltdown
By Julie L MacArthur
Rabble (Canada)
A spectre is haunting Ireland -- the spectre of James Connolly.
Connolly was executed by a British firing squad for his role in Ireland's 1916 Easter Rising for home rule. Celebrated as a hero of Irish independence by political parties of both the left and right in Ireland, his socialism is all too conveniently overlooked.
It is vital, however, to consider it, for the Irish struggle is one that speaks to the challenges of independence, sovereignty and democratic freedom, both at that time and now. And it is significant for the people of Ireland and of all countries. What value is formal political independence if it is not backed up by economic control; if the real decisions of public policy are made in boardrooms and backrooms rather than main streets and parliaments?
For Connolly:
"If you remove the English army tomorrow and hoist the green flag over Dublin Castle, unless you set about the organisation of the socialist Republic your efforts would be in vain. England would still rule you. She would rule you through her capitalists, through her landlords, through her financiers, through the whole army of commercial and individual institutions she has planted in this country and watered with the tears of our mothers and the blood of our martyrs." (Socialism and Nationalism, p25)
Now back to present-day Ireland.
A who's who of global finance descended upon Dublin in November to "hoist their flags," from the International Monetary Fund (IMF) and the European Central Bank (ECB), to the Rothschild investment bank, Merrill, Barclays, JP Morgan and Goldman Sachs. These power brokers arrived to prevent "contagion" from the financial crisis in this small country of 4.5 million people by lending the Irish state billions of euros to recapitalize insolvent banks and shore up the country's finances.
Unfortunately for the Irish, these actors came armed with the same ideological and policy tools that caused the crisis: a commitment to neoliberal growth models, open markets and the primacy of financial interests over those of labour, sovereignty or independence. Moreover, alternative ideas and paths are lacking from elites in Ireland's two major parties, Fianna Fáil and Fine Gael, as both are proven devotees of this free-market fundamentalism. It was their desire, proclaimed loudly through the 1990s and 2000s, to be "closer to Boston than Berlin" in regulation and finance.
Debt: to infinity, and beyond
The reasons for Ireland's economic collapse have been well covered by the global press in recent weeks. These include: an unsustainable growth model built on extremely low corporate taxes (12.5 per cent) and multinational inward investment, a property bubble fueled by cheap international credit, and politicians far too cozy with domestic banks and developers to regulate them sufficiently.
What is rarely highlighted in the press is the fact that Irish public spending was the casualty -- not the cause -- of the crisis. When Lehman Brothers investment bank collapsed in 2008 and credit markets seized up, Ireland's property bubble burst. As a result, a significant portion of bank assets became worthless and the country's construction and property sectors came to a standstill. The Irish government recapitalized banks with government bonds (totaling more than 176 per cent of GDP in 2009) in return for worthless property assets.
Dublin announced the deepest spending cuts in the history of the Republic to meet the conditions of the Nov. 28 €85 billion IMF and European Central Bank (ECB) loan. The state plans to raise income and sales taxes by €5 billion and cut spending by €10 billion by: reducing welfare payments by €3 billion, eliminating 25,000 public sector jobs and raising sales taxes by two per cent (to 23 per cent) by 2014.
According to economists Simon Johnson and Peter Boone "each Irish family of four will be liable for €200,000 in public debt by 2015." In all, €20.7 billion from the public pension fund was funneled to the banks over the last year and a half.
Perhaps most significantly, the Nov. 24 national budget plan outlined no change in the corporate tax rate of 12.5 per cent (one of the lowest corporate tax rates in Europe) "under any circumstances."
There were alternatives. The government could have required creditors to bear a share of the costs by allowing defaults and some bank failures. They could also have required the companies who have benefitted for years from the corporate tax policy to pay an equal share. Google, for example, reportedly saved $3.1 billion in taxes over the last three years by setting up in Ireland.
More recently, calls to withdraw from the European Monetary Union (EMU) have emerged in order to follow Iceland's lead of currency devaluation (an option denied Ireland). They chose to draw from the public purse instead.
While the IMF is asserts that its work pushing austerity in Ireland is ‘technical not political' the Irish public disagrees, and so do I. What could be more political than the socialization of bank debts and transfers of public wealth in to private hands?
Popular backlash
As the costs of propping up corrupt officials, developers and international bankers becomes increasingly unpalatable, politics in the Republic is shifting left; according to a Dec. 2 poll, Sinn Fein - "we ourselves" in Irish -- is two points higher than the ruling party Fianna Fáil. They won a historically unprecedented by-election seat in Donegal on Nov. 25 and their support in the south has doubled in the past month, from 8 per cent to 16 per cent. Political heavyweight Gerry Adams is giving up his seat in Westminster to run in the Republic's early 2011 election. These gains have opened up the possibility of a coalition with the Irish Labour Party in the New Year. This represents a colossal swing in post-independence Irish politics dominated by 60 years of rightist Fianna Fáil and Fine Gael.
Political opposition to the status quo also transcends electoral politics. On Nov. 27, 2010 close to 100,000 people (the equivalent of 785,000 in Canada) marched through the streets of Dublin. The banners and placards quoted Connolly and other heroes of Irish independence. These protests have been growing in size and frequency over the past year.
Such political developments may be short lived. Free-market party Fine Gael is also gaining politically as more conservative voters swap one establishment party for another.
Furthermore, nearly one in three Irish youth are predicted to leave the country in coming years, to make ends meet in countries like Canada and Australia, thus eroding some momentum for change. Finally the Congress of Irish Trade Unions (CITU) -- the organizer of the largest and most recent rally -- is seen as tainted by years of "social partnership" with ruling parties. Taken together, these factors may undermine the development of a cohesive and coherent political countermovement.
To Read the Rest of the Essay
Showing posts with label Finance. Show all posts
Showing posts with label Finance. Show all posts
Sunday, March 06, 2011
Tuesday, February 22, 2011
Matt Taibbi: Why Isn't Wall Street in Jail?
[Courtesy of Democracy Now's interview with Taibbi]
Why Isn't Wall Street in Jail? Financial crooks brought down the world's economy — but the feds are doing more to protect them than to prosecute them
by Matt Taibbi
Rolling Stone
Over drinks at a bar on a dreary, snowy night in Washington this past month, a former Senate investigator laughed as he polished off his beer.
"Everything's fucked up, and nobody goes to jail," he said. "That's your whole story right there. Hell, you don't even have to write the rest of it. Just write that."
I put down my notebook. "Just that?"
"That's right," he said, signaling to the waitress for the check. "Everything's fucked up, and nobody goes to jail. You can end the piece right there."
Nobody goes to jail. This is the mantra of the financial-crisis era, one that saw virtually every major bank and financial company on Wall Street embroiled in obscene criminal scandals that impoverished millions and collectively destroyed hundreds of billions, in fact, trillions of dollars of the world's wealth — and nobody went to jail. Nobody, that is, except Bernie Madoff, a flamboyant and pathological celebrity con artist, whose victims happened to be other rich and famous people.
...
Here's how regulation of Wall Street is supposed to work. To begin with, there's a semigigantic list of public and quasi-public agencies ostensibly keeping their eyes on the economy, a dense alphabet soup of banking, insurance, S&L, securities and commodities regulators like the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC), the Office of the Comptroller of the Currency (OCC) and the Commodity Futures Trading Commission (CFTC), as well as supposedly "self-regulating organizations" like the New York Stock Exchange. All of these outfits, by law, can at least begin the process of catching and investigating financial criminals, though none of them has prosecutorial power.
The major federal agency on the Wall Street beat is the Securities and Exchange Commission. The SEC watches for violations like insider trading, and also deals with so-called "disclosure violations" — i.e., making sure that all the financial information that publicly traded companies are required to make public actually jibes with reality. But the SEC doesn't have prosecutorial power either, so in practice, when it looks like someone needs to go to jail, they refer the case to the Justice Department. And since the vast majority of crimes in the financial services industry take place in Lower Manhattan, cases referred by the SEC often end up in the U.S. Attorney's Office for the Southern District of New York. Thus, the two top cops on Wall Street are generally considered to be that U.S. attorney — a job that has been held by thunderous prosecutorial personae like Robert Morgenthau and Rudy Giuliani — and the SEC's director of enforcement.
The relationship between the SEC and the DOJ is necessarily close, even symbiotic. Since financial crime-fighting requires a high degree of financial expertise — and since the typical drug-and-terrorism-obsessed FBI agent can't balance his own checkbook, let alone tell a synthetic CDO from a credit default swap — the Justice Department ends up leaning heavily on the SEC's army of 1,100 number-crunching investigators to make their cases. In theory, it's a well-oiled, tag-team affair: Billionaire Wall Street Asshole commits fraud, the NYSE catches on and tips off the SEC, the SEC works the case and delivers it to Justice, and Justice perp-walks the Asshole out of Nobu, into a Crown Victoria and off to 36 months of push-ups, license-plate making and Salisbury steak.
That's the way it's supposed to work. But a veritable mountain of evidence indicates that when it comes to Wall Street, the justice system not only sucks at punishing financial criminals, it has actually evolved into a highly effective mechanism for protecting financial criminals. This institutional reality has absolutely nothing to do with politics or ideology — it takes place no matter who's in office or which party's in power. To understand how the machinery functions, you have to start back at least a decade ago, as case after case of financial malfeasance was pursued too slowly or not at all, fumbled by a government bureaucracy that too often is on a first-name basis with its targets. Indeed, the shocking pattern of nonenforcement with regard to Wall Street is so deeply ingrained in Washington that it raises a profound and difficult question about the very nature of our society: whether we have created a class of people whose misdeeds are no longer perceived as crimes, almost no matter what those misdeeds are. The SEC and the Justice Department have evolved into a bizarre species of social surgeon serving this nonjailable class, expert not at administering punishment and justice, but at finding and removing criminal responsibility from the bodies of the accused.
The systematic lack of regulation has left even the country's top regulators frustrated. Lynn Turner, a former chief accountant for the SEC, laughs darkly at the idea that the criminal justice system is broken when it comes to Wall Street. "I think you've got a wrong assumption — that we even have a law-enforcement agency when it comes to Wall Street," he says.
To Read the Entire Essay
Why Isn't Wall Street in Jail? Financial crooks brought down the world's economy — but the feds are doing more to protect them than to prosecute them
by Matt Taibbi
Rolling Stone
Over drinks at a bar on a dreary, snowy night in Washington this past month, a former Senate investigator laughed as he polished off his beer.
"Everything's fucked up, and nobody goes to jail," he said. "That's your whole story right there. Hell, you don't even have to write the rest of it. Just write that."
I put down my notebook. "Just that?"
"That's right," he said, signaling to the waitress for the check. "Everything's fucked up, and nobody goes to jail. You can end the piece right there."
Nobody goes to jail. This is the mantra of the financial-crisis era, one that saw virtually every major bank and financial company on Wall Street embroiled in obscene criminal scandals that impoverished millions and collectively destroyed hundreds of billions, in fact, trillions of dollars of the world's wealth — and nobody went to jail. Nobody, that is, except Bernie Madoff, a flamboyant and pathological celebrity con artist, whose victims happened to be other rich and famous people.
...
Here's how regulation of Wall Street is supposed to work. To begin with, there's a semigigantic list of public and quasi-public agencies ostensibly keeping their eyes on the economy, a dense alphabet soup of banking, insurance, S&L, securities and commodities regulators like the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC), the Office of the Comptroller of the Currency (OCC) and the Commodity Futures Trading Commission (CFTC), as well as supposedly "self-regulating organizations" like the New York Stock Exchange. All of these outfits, by law, can at least begin the process of catching and investigating financial criminals, though none of them has prosecutorial power.
The major federal agency on the Wall Street beat is the Securities and Exchange Commission. The SEC watches for violations like insider trading, and also deals with so-called "disclosure violations" — i.e., making sure that all the financial information that publicly traded companies are required to make public actually jibes with reality. But the SEC doesn't have prosecutorial power either, so in practice, when it looks like someone needs to go to jail, they refer the case to the Justice Department. And since the vast majority of crimes in the financial services industry take place in Lower Manhattan, cases referred by the SEC often end up in the U.S. Attorney's Office for the Southern District of New York. Thus, the two top cops on Wall Street are generally considered to be that U.S. attorney — a job that has been held by thunderous prosecutorial personae like Robert Morgenthau and Rudy Giuliani — and the SEC's director of enforcement.
The relationship between the SEC and the DOJ is necessarily close, even symbiotic. Since financial crime-fighting requires a high degree of financial expertise — and since the typical drug-and-terrorism-obsessed FBI agent can't balance his own checkbook, let alone tell a synthetic CDO from a credit default swap — the Justice Department ends up leaning heavily on the SEC's army of 1,100 number-crunching investigators to make their cases. In theory, it's a well-oiled, tag-team affair: Billionaire Wall Street Asshole commits fraud, the NYSE catches on and tips off the SEC, the SEC works the case and delivers it to Justice, and Justice perp-walks the Asshole out of Nobu, into a Crown Victoria and off to 36 months of push-ups, license-plate making and Salisbury steak.
That's the way it's supposed to work. But a veritable mountain of evidence indicates that when it comes to Wall Street, the justice system not only sucks at punishing financial criminals, it has actually evolved into a highly effective mechanism for protecting financial criminals. This institutional reality has absolutely nothing to do with politics or ideology — it takes place no matter who's in office or which party's in power. To understand how the machinery functions, you have to start back at least a decade ago, as case after case of financial malfeasance was pursued too slowly or not at all, fumbled by a government bureaucracy that too often is on a first-name basis with its targets. Indeed, the shocking pattern of nonenforcement with regard to Wall Street is so deeply ingrained in Washington that it raises a profound and difficult question about the very nature of our society: whether we have created a class of people whose misdeeds are no longer perceived as crimes, almost no matter what those misdeeds are. The SEC and the Justice Department have evolved into a bizarre species of social surgeon serving this nonjailable class, expert not at administering punishment and justice, but at finding and removing criminal responsibility from the bodies of the accused.
The systematic lack of regulation has left even the country's top regulators frustrated. Lynn Turner, a former chief accountant for the SEC, laughs darkly at the idea that the criminal justice system is broken when it comes to Wall Street. "I think you've got a wrong assumption — that we even have a law-enforcement agency when it comes to Wall Street," he says.
To Read the Entire Essay
Monday, February 14, 2011
Frontline: The Warning
The Warning
Frontline (PBS)
In The Warning, veteran FRONTLINE producer Michael Kirk unearths the hidden history of the nation's worst financial crisis since the Great Depression. At the center of it all he finds Brooksley Born, who speaks for the first time on television about her failed campaign to regulate the secretive, multitrillion-dollar derivatives market whose crash helped trigger the financial collapse in the fall of 2008.
"I didn't know Brooksley Born," says former SEC Chairman Arthur Levitt, a member of President Clinton's powerful Working Group on Financial Markets. "I was told that she was irascible, difficult, stubborn, unreasonable." Levitt explains how the other principals of the Working Group -- former Fed Chairman Alan Greenspan and former Treasury Secretary Robert Rubin -- convinced him that Born's attempt to regulate the risky derivatives market could lead to financial turmoil, a conclusion he now believes was "clearly a mistake."
Born's battle behind closed doors was epic, Kirk finds. The members of the President's Working Group vehemently opposed regulation -- especially when proposed by a Washington outsider like Born.
"I walk into Brooksley's office one day; the blood has drained from her face," says Michael Greenberger, a former top official at the CFTC who worked closely with Born. "She's hanging up the telephone; she says to me: 'That was [former Assistant Treasury Secretary] Larry Summers. He says, "You're going to cause the worst financial crisis since the end of World War II."... [He says he has] 13 bankers in his office who informed him of this. Stop, right away. No more.'"
Greenspan, Rubin and Summers ultimately prevailed on Congress to stop Born and limit future regulation of derivatives. "Born faced a formidable struggle pushing for regulation at a time when the stock market was booming," Kirk says. "Alan Greenspan was the maestro, and both parties in Washington were united in a belief that the markets would take care of themselves."
Now, with many of the same men who shut down Born in key positions in the Obama administration, The Warning reveals the complicated politics that led to this crisis and what it may say about current attempts to prevent the next one.
"It'll happen again if we don't take the appropriate steps," Born warns. "There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience."
To Watch the Episode
Frontline (PBS)
In The Warning, veteran FRONTLINE producer Michael Kirk unearths the hidden history of the nation's worst financial crisis since the Great Depression. At the center of it all he finds Brooksley Born, who speaks for the first time on television about her failed campaign to regulate the secretive, multitrillion-dollar derivatives market whose crash helped trigger the financial collapse in the fall of 2008.
"I didn't know Brooksley Born," says former SEC Chairman Arthur Levitt, a member of President Clinton's powerful Working Group on Financial Markets. "I was told that she was irascible, difficult, stubborn, unreasonable." Levitt explains how the other principals of the Working Group -- former Fed Chairman Alan Greenspan and former Treasury Secretary Robert Rubin -- convinced him that Born's attempt to regulate the risky derivatives market could lead to financial turmoil, a conclusion he now believes was "clearly a mistake."
Born's battle behind closed doors was epic, Kirk finds. The members of the President's Working Group vehemently opposed regulation -- especially when proposed by a Washington outsider like Born.
"I walk into Brooksley's office one day; the blood has drained from her face," says Michael Greenberger, a former top official at the CFTC who worked closely with Born. "She's hanging up the telephone; she says to me: 'That was [former Assistant Treasury Secretary] Larry Summers. He says, "You're going to cause the worst financial crisis since the end of World War II."... [He says he has] 13 bankers in his office who informed him of this. Stop, right away. No more.'"
Greenspan, Rubin and Summers ultimately prevailed on Congress to stop Born and limit future regulation of derivatives. "Born faced a formidable struggle pushing for regulation at a time when the stock market was booming," Kirk says. "Alan Greenspan was the maestro, and both parties in Washington were united in a belief that the markets would take care of themselves."
Now, with many of the same men who shut down Born in key positions in the Obama administration, The Warning reveals the complicated politics that led to this crisis and what it may say about current attempts to prevent the next one.
"It'll happen again if we don't take the appropriate steps," Born warns. "There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience."
To Watch the Episode
Sunday, December 26, 2010
Ha-Joon Chang: Kicking Away the Ladder -- Neoliberals Rewrite History
Kicking Away the Ladder: Neoliberals Rewrite History
By Ha-Joon Chang
Monthly Review
There is currently great pressure on developing countries to adopt a set of “good
policies” and “good institutions”—such as liberalization of trade and investment and
strong patent law—to foster their economic development. When some developing
countries show reluctance in adopting them, the proponents of this recipe often find it difficult to understand these countries’ stupidity in not accepting such a tried and tested recipe for development. After all, they argue, these are the policies and the institutions that the developed countries had used in the past in order to become rich. Their belief in their own recommendations is so absolute that, in their view, they must be imposed on the developing countries through strong bilateral and multilateral external pressures, even when these countries don’t want them.
Naturally, there have been heated debates on whether these recommended policies and institutions are appropriate for developing countries. However, curiously, even many of those who are skeptical of the applicability of these policies and institutions to the developing countries take it for granted that these were the policies and the institutions that were used by the developed countries when they themselves were developing nations.
Contrary to the conventional wisdom, the historical fact is that the rich countries
did not develop on the basis of the policies and the institutions that they now recommend to, and often force upon, the developing countries. Unfortunately, this fact is little known these days because the “official historians” of capitalism have been very successful in rewriting its history. Almost all of today’s rich countries used tariff protection and subsidies to develop their industries. Interestingly, Great Britain and the United States, the two countries that are supposed to have reached summit of the world economy through their free-market free-trade policies, are actually the countries that have most aggressively used protection and subsidies.
Contrary to the popular myth, Britain was an aggressive user, and in certain areas
a pioneer, of activist policies intended to promote its industries. Such policies, although limited in scope, date back to the fourteenth century (Edward III) and the fifteenth century (Henry VII) in relation to woolen manufacturing, the leading industry of the time.
England was then an exporter of raw wool to the Low Countries, and Henry VII, for
example, tried to change this by taxing raw wool exports and poaching skilled workers
from the Low Countries. Particularly between the trade policy reform of its first Prime Minister, Robert Walpole, in 1721 and its adoption of free trade around 1860, Britain used very state-directed trade and industrial policies, involving measures very similar to those used later by countries like Japan and Korea to develop their industries. During this period, it protected its industries more than did France, the supposed counterpoint to its free-trade free-market system. Friedrich List, the leading German economist of the mid-nineteenth century, argued that given this history, Britain preaching free trade to less advanced countries like Germany and the United States was like someone trying to “kick away the ladder” with which he had climbed to the top. List was not alone in seeing the matter in this light.
Many American thinkers shared this view. Indeed, it was American thinkers like Alexander Hamilton, the first Treasury Secretary of the United States, and the now-forgotten economist Daniel Raymond, who first systematically developed the infant industry argument. List, considered the father of the infant industry argument,
started out as a free-trader (ardently supporting the Zollverein, a customs union which eliminated trade barriers among German states) and learned about this argument during his exile in the United States during the 1820s.
Little known today, the intellectual interaction between the United States and Germany during the nineteenth century did not end there. The German Historical School—represented by people like Wilhelm Roscher, Bruno Hildebrand, Karl Knies,
Gustav Schmoller, and Werner Sombart—attracted a lot of American economists in the
late nineteenth century. The patron saint of American neoclassical economics, John Bates Clark, in whose name the most prestigious award for young American economists is given today, went to Germany in 1873 and studied the German Historical School under Roscher and Knies, although he gradually drifted away from it. Richard Ely, one of the leading American economists of the time, also studied under Knies and influenced the American Institutionalist School through his disciple, John Commons. Ely was one of the founding fathers of the American Economic Association (AEA); to this day, the biggest public lecture at the Association’s annual meeting is given in Ely’s name, although few of the present AEA members would know who he was.
Between the Civil War and the Second World War, the United States had the most heavily protected economy in the world. Abraham Lincoln was a well-known protectionist who cut his political teeth under the charismatic politician Henry Clay in the Whig Party, which advocated the “American System” based on infrastructural development and protectionism. They understood that free trade was in the interests of Britain, but not the United States. One of Lincoln’s top economic advisors was the famous protectionist economist, Henry Carey, who was described as “the only American economist of importance” by Marx and Engels in the early 1850s but has now been almost completely airbrushed out of the history of American economic thought.
In protecting their industries, the Americans were going against the advice of such
prominent economists as Adam Smith and Jean Baptiste Say, who saw the country’s future in agriculture. However, the Americans knew exactly what they were doing. They
understood that Britain had reached the top through protection and subsidies, and they needed to do the same if they were going to get anywhere. Criticizing the British preaching of free trade to his country, Ulysses S. Grant, the Civil War hero and U.S. president from 1868 to 1876, retorted that “within 200 years, when America has gotten out of protection all that it can offer, it too will adopt free trade.” When his country later reached the top after the Second World War, it too started “kicking away the ladder,” preaching free trade to the less developed countries and forcing them to accept it.
To Read the Rest of the Essay
By Ha-Joon Chang
Monthly Review
There is currently great pressure on developing countries to adopt a set of “good
policies” and “good institutions”—such as liberalization of trade and investment and
strong patent law—to foster their economic development. When some developing
countries show reluctance in adopting them, the proponents of this recipe often find it difficult to understand these countries’ stupidity in not accepting such a tried and tested recipe for development. After all, they argue, these are the policies and the institutions that the developed countries had used in the past in order to become rich. Their belief in their own recommendations is so absolute that, in their view, they must be imposed on the developing countries through strong bilateral and multilateral external pressures, even when these countries don’t want them.
Naturally, there have been heated debates on whether these recommended policies and institutions are appropriate for developing countries. However, curiously, even many of those who are skeptical of the applicability of these policies and institutions to the developing countries take it for granted that these were the policies and the institutions that were used by the developed countries when they themselves were developing nations.
Contrary to the conventional wisdom, the historical fact is that the rich countries
did not develop on the basis of the policies and the institutions that they now recommend to, and often force upon, the developing countries. Unfortunately, this fact is little known these days because the “official historians” of capitalism have been very successful in rewriting its history. Almost all of today’s rich countries used tariff protection and subsidies to develop their industries. Interestingly, Great Britain and the United States, the two countries that are supposed to have reached summit of the world economy through their free-market free-trade policies, are actually the countries that have most aggressively used protection and subsidies.
Contrary to the popular myth, Britain was an aggressive user, and in certain areas
a pioneer, of activist policies intended to promote its industries. Such policies, although limited in scope, date back to the fourteenth century (Edward III) and the fifteenth century (Henry VII) in relation to woolen manufacturing, the leading industry of the time.
England was then an exporter of raw wool to the Low Countries, and Henry VII, for
example, tried to change this by taxing raw wool exports and poaching skilled workers
from the Low Countries. Particularly between the trade policy reform of its first Prime Minister, Robert Walpole, in 1721 and its adoption of free trade around 1860, Britain used very state-directed trade and industrial policies, involving measures very similar to those used later by countries like Japan and Korea to develop their industries. During this period, it protected its industries more than did France, the supposed counterpoint to its free-trade free-market system. Friedrich List, the leading German economist of the mid-nineteenth century, argued that given this history, Britain preaching free trade to less advanced countries like Germany and the United States was like someone trying to “kick away the ladder” with which he had climbed to the top. List was not alone in seeing the matter in this light.
Many American thinkers shared this view. Indeed, it was American thinkers like Alexander Hamilton, the first Treasury Secretary of the United States, and the now-forgotten economist Daniel Raymond, who first systematically developed the infant industry argument. List, considered the father of the infant industry argument,
started out as a free-trader (ardently supporting the Zollverein, a customs union which eliminated trade barriers among German states) and learned about this argument during his exile in the United States during the 1820s.
Little known today, the intellectual interaction between the United States and Germany during the nineteenth century did not end there. The German Historical School—represented by people like Wilhelm Roscher, Bruno Hildebrand, Karl Knies,
Gustav Schmoller, and Werner Sombart—attracted a lot of American economists in the
late nineteenth century. The patron saint of American neoclassical economics, John Bates Clark, in whose name the most prestigious award for young American economists is given today, went to Germany in 1873 and studied the German Historical School under Roscher and Knies, although he gradually drifted away from it. Richard Ely, one of the leading American economists of the time, also studied under Knies and influenced the American Institutionalist School through his disciple, John Commons. Ely was one of the founding fathers of the American Economic Association (AEA); to this day, the biggest public lecture at the Association’s annual meeting is given in Ely’s name, although few of the present AEA members would know who he was.
Between the Civil War and the Second World War, the United States had the most heavily protected economy in the world. Abraham Lincoln was a well-known protectionist who cut his political teeth under the charismatic politician Henry Clay in the Whig Party, which advocated the “American System” based on infrastructural development and protectionism. They understood that free trade was in the interests of Britain, but not the United States. One of Lincoln’s top economic advisors was the famous protectionist economist, Henry Carey, who was described as “the only American economist of importance” by Marx and Engels in the early 1850s but has now been almost completely airbrushed out of the history of American economic thought.
In protecting their industries, the Americans were going against the advice of such
prominent economists as Adam Smith and Jean Baptiste Say, who saw the country’s future in agriculture. However, the Americans knew exactly what they were doing. They
understood that Britain had reached the top through protection and subsidies, and they needed to do the same if they were going to get anywhere. Criticizing the British preaching of free trade to his country, Ulysses S. Grant, the Civil War hero and U.S. president from 1868 to 1876, retorted that “within 200 years, when America has gotten out of protection all that it can offer, it too will adopt free trade.” When his country later reached the top after the Second World War, it too started “kicking away the ladder,” preaching free trade to the less developed countries and forcing them to accept it.
To Read the Rest of the Essay
Wednesday, December 01, 2010
Roman Frydman and Michael D. Goldberg: Market Mysticism
Market mysticism
Roman Frydman and Michael D. Goldberg
Eurozine
Faith in the "efficient markets hypothesis" is largely to blame for the massive deregulation of the late 1990s and early 2000s that made the crisis more likely, if not inevitable. Two economists excoriate the ideology of self-regulating markets and its pseudo-scientific foundations.
...
What is worse, the false concept of rationality on which mainstream economic theory is based, also underpins mistaken conclusions about the proper extent of market regulation. As a result, contemporary economic models produce two extreme positions: exclusion of any active role for the state or radical state interventionism.
As Michel Foucault convincingly showed, language is power. Aware of this, the neo-classical economists carried out a real coup d'état. They created a para-scientific jargon that helped them to direct social choices in a very dangerous and unproductive direction. The premises that form the basis of their models became in great part inscrutable to anyone lacking a PhD in economics, and debate was infused with terms that mean one thing to the uninitiated and quite another to economists.
The concept of rationality forms the foundation of this discourse. In everyday language, rationality means common sense or reasonableness. By contrast, for economists, a "rational individual" is not merely reasonable; he or she is someone who behaves in accord with a mathematical model of individual decision-making that economists have agreed to call "rational". The centrepiece of this standard of rationality, the so-called "Rational Expectations Hypothesis" (REH), presumes that economists can exactly model how rational individuals comprehend the future. The unreasonableness of this standard helps explain why macroeconomists and finance theorists find it so hard to account for large swings in market outcomes.
Indeed, economists' incoherent premises have led them to embrace absurd conclusions – for example, that unfettered financial markets set asset prices nearly perfectly at their "true" fundamental value. If so, the state should drastically curtail its supervision of the financial system. Unfortunately, many officials worldwide came to believe this claim, known as the "efficient markets hypothesis," resulting in the massive deregulation of the late 1990s and early 2000s that made the crisis more likely, if not inevitable.
In recent years, another school of thought, behavioural economics, has uncovered mountains of evidence that market participants do not act as conventional economists would predict "rational individuals" to behave. But, instead of jettisoning the bogus standard of rationality underlying those predictions, they interpret their empirical findings to mean that many market participants are irrational, prone to emotion, or ignore economic fundamentals for other reasons.
The behavioural view suggests that large swings in asset prices serve no useful social function. If the state could somehow eliminate them through massive intervention, or ban irrational players by imposing strict regulatory measures, the "rational" players could reassert their control and markets would return to their normal state of setting prices at their "true" values.
This is implausible, because an exact model of rational decision-making is beyond the capacity of economists – or anyone else – to formulate. Once economists recognize that they cannot explain exactly how reasonable individuals make decisions and how market outcomes unfold over time, we will no longer be stuck with two polar extremes concerning the relative roles of the market and the state.
An alternative theory of markets is needed, and its basis should be the fact that participants must cope with ever-imperfect knowledge about the fundamentals of economic change. This obvious feature of capitalism is completely ignored by the dominant market models, though it is the main explanation for asset-price fluctuations in market-based economies.
Such an alternative approach also leads to a new way of thinking about the respective roles of the state and financial markets. So long as price fluctuations remain within reasonable bounds, the state should limit its involvement to ensuring transparency, curbing monopolistic behaviour, and eliminating market failures. But when price fluctuations become excessive, as they did in the run-up to the recent crisis, the state can implement measures to limit their amplitude (though it always has a greater problem coping with imperfect knowledge than the market does).
A combination of passive and active roles for the state along these lines would leave markets to allocate capital while holding out the possibility of reducing the social costs that arise when asset-price swings continue for too long and then end, as they inevitably do, in sharp reversals.
To Read the Entire Essay
Roman Frydman and Michael D. Goldberg
Eurozine
Faith in the "efficient markets hypothesis" is largely to blame for the massive deregulation of the late 1990s and early 2000s that made the crisis more likely, if not inevitable. Two economists excoriate the ideology of self-regulating markets and its pseudo-scientific foundations.
...
What is worse, the false concept of rationality on which mainstream economic theory is based, also underpins mistaken conclusions about the proper extent of market regulation. As a result, contemporary economic models produce two extreme positions: exclusion of any active role for the state or radical state interventionism.
As Michel Foucault convincingly showed, language is power. Aware of this, the neo-classical economists carried out a real coup d'état. They created a para-scientific jargon that helped them to direct social choices in a very dangerous and unproductive direction. The premises that form the basis of their models became in great part inscrutable to anyone lacking a PhD in economics, and debate was infused with terms that mean one thing to the uninitiated and quite another to economists.
The concept of rationality forms the foundation of this discourse. In everyday language, rationality means common sense or reasonableness. By contrast, for economists, a "rational individual" is not merely reasonable; he or she is someone who behaves in accord with a mathematical model of individual decision-making that economists have agreed to call "rational". The centrepiece of this standard of rationality, the so-called "Rational Expectations Hypothesis" (REH), presumes that economists can exactly model how rational individuals comprehend the future. The unreasonableness of this standard helps explain why macroeconomists and finance theorists find it so hard to account for large swings in market outcomes.
Indeed, economists' incoherent premises have led them to embrace absurd conclusions – for example, that unfettered financial markets set asset prices nearly perfectly at their "true" fundamental value. If so, the state should drastically curtail its supervision of the financial system. Unfortunately, many officials worldwide came to believe this claim, known as the "efficient markets hypothesis," resulting in the massive deregulation of the late 1990s and early 2000s that made the crisis more likely, if not inevitable.
In recent years, another school of thought, behavioural economics, has uncovered mountains of evidence that market participants do not act as conventional economists would predict "rational individuals" to behave. But, instead of jettisoning the bogus standard of rationality underlying those predictions, they interpret their empirical findings to mean that many market participants are irrational, prone to emotion, or ignore economic fundamentals for other reasons.
The behavioural view suggests that large swings in asset prices serve no useful social function. If the state could somehow eliminate them through massive intervention, or ban irrational players by imposing strict regulatory measures, the "rational" players could reassert their control and markets would return to their normal state of setting prices at their "true" values.
This is implausible, because an exact model of rational decision-making is beyond the capacity of economists – or anyone else – to formulate. Once economists recognize that they cannot explain exactly how reasonable individuals make decisions and how market outcomes unfold over time, we will no longer be stuck with two polar extremes concerning the relative roles of the market and the state.
An alternative theory of markets is needed, and its basis should be the fact that participants must cope with ever-imperfect knowledge about the fundamentals of economic change. This obvious feature of capitalism is completely ignored by the dominant market models, though it is the main explanation for asset-price fluctuations in market-based economies.
Such an alternative approach also leads to a new way of thinking about the respective roles of the state and financial markets. So long as price fluctuations remain within reasonable bounds, the state should limit its involvement to ensuring transparency, curbing monopolistic behaviour, and eliminating market failures. But when price fluctuations become excessive, as they did in the run-up to the recent crisis, the state can implement measures to limit their amplitude (though it always has a greater problem coping with imperfect knowledge than the market does).
A combination of passive and active roles for the state along these lines would leave markets to allocate capital while holding out the possibility of reducing the social costs that arise when asset-price swings continue for too long and then end, as they inevitably do, in sharp reversals.
To Read the Entire Essay
Monday, October 04, 2010
Saturday, July 03, 2010
Johann Hari: How Goldman gambled on starvation
How Goldman gambled on starvation
by Johann Hari
The Independent (UK)
Speculators set up a casino where the chips were the stomachs of millions. What does it say about our system that we can so casually inflict so much pain?
By now, you probably think your opinion of Goldman Sachs and its swarm of Wall Street allies has rock-bottomed at raw loathing. You're wrong. There's more. It turns out that the most destructive of all their recent acts has barely been discussed at all. Here's the rest. This is the story of how some of the richest people in the world – Goldman, Deutsche Bank, the traders at Merrill Lynch, and more – have caused the starvation of some of the poorest people in the world.
It starts with an apparent mystery. At the end of 2006, food prices across the world started to rise, suddenly and stratospherically. Within a year, the price of wheat had shot up by 80 per cent, maize by 90 per cent, rice by 320 per cent. In a global jolt of hunger, 200 million people – mostly children – couldn't afford to get food any more, and sank into malnutrition or starvation. There were riots in more than 30 countries, and at least one government was violently overthrown. Then, in spring 2008, prices just as mysteriously fell back to their previous level. Jean Ziegler, the UN Special Rapporteur on the Right to Food, calls it "a silent mass murder", entirely due to "man-made actions."
Earlier this year I was in Ethiopia, one of the worst-hit countries, and people there remember the food crisis as if they had been struck by a tsunami. "My children stopped growing," a woman my age called Abiba Getaneh, told me. "I felt like battery acid had been poured into my stomach as I starved. I took my two daughters out of school and got into debt. If it had gone on much longer, I think my baby would have died."
Most of the explanations we were given at the time have turned out to be false. It didn't happen because supply fell: the International Grain Council says global production of wheat actually increased during that period, for example. It isn't because demand grew either: as Professor Jayati Ghosh of the Centre for Economic Studies in New Delhi has shown, demand actually fell by 3 per cent. Other factors – like the rise of biofuels, and the spike in the oil price – made a contribution, but they aren't enough on their own to explain such a violent shift.
To understand the biggest cause, you have to plough through some concepts that will make your head ache – but not half as much as they made the poor world's stomachs ache.
For over a century, farmers in wealthy countries have been able to engage in a process where they protect themselves against risk. Farmer Giles can agree in January to sell his crop to a trader in August at a fixed price. If he has a great summer, he'll lose some cash, but if there's a lousy summer or the global price collapses, he'll do well from the deal. When this process was tightly regulated and only companies with a direct interest in the field could get involved, it worked.
To Read the Entire Article
by Johann Hari
The Independent (UK)
Speculators set up a casino where the chips were the stomachs of millions. What does it say about our system that we can so casually inflict so much pain?
By now, you probably think your opinion of Goldman Sachs and its swarm of Wall Street allies has rock-bottomed at raw loathing. You're wrong. There's more. It turns out that the most destructive of all their recent acts has barely been discussed at all. Here's the rest. This is the story of how some of the richest people in the world – Goldman, Deutsche Bank, the traders at Merrill Lynch, and more – have caused the starvation of some of the poorest people in the world.
It starts with an apparent mystery. At the end of 2006, food prices across the world started to rise, suddenly and stratospherically. Within a year, the price of wheat had shot up by 80 per cent, maize by 90 per cent, rice by 320 per cent. In a global jolt of hunger, 200 million people – mostly children – couldn't afford to get food any more, and sank into malnutrition or starvation. There were riots in more than 30 countries, and at least one government was violently overthrown. Then, in spring 2008, prices just as mysteriously fell back to their previous level. Jean Ziegler, the UN Special Rapporteur on the Right to Food, calls it "a silent mass murder", entirely due to "man-made actions."
Earlier this year I was in Ethiopia, one of the worst-hit countries, and people there remember the food crisis as if they had been struck by a tsunami. "My children stopped growing," a woman my age called Abiba Getaneh, told me. "I felt like battery acid had been poured into my stomach as I starved. I took my two daughters out of school and got into debt. If it had gone on much longer, I think my baby would have died."
Most of the explanations we were given at the time have turned out to be false. It didn't happen because supply fell: the International Grain Council says global production of wheat actually increased during that period, for example. It isn't because demand grew either: as Professor Jayati Ghosh of the Centre for Economic Studies in New Delhi has shown, demand actually fell by 3 per cent. Other factors – like the rise of biofuels, and the spike in the oil price – made a contribution, but they aren't enough on their own to explain such a violent shift.
To understand the biggest cause, you have to plough through some concepts that will make your head ache – but not half as much as they made the poor world's stomachs ache.
For over a century, farmers in wealthy countries have been able to engage in a process where they protect themselves against risk. Farmer Giles can agree in January to sell his crop to a trader in August at a fixed price. If he has a great summer, he'll lose some cash, but if there's a lousy summer or the global price collapses, he'll do well from the deal. When this process was tightly regulated and only companies with a direct interest in the field could get involved, it worked.
To Read the Entire Article
Thursday, June 03, 2010
Simon Johnson: The Quiet Coup
The Quiet Coup
by Simon Johnson
The Atlantic Monthly
...
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.
Top investment bankers and government officials like to lay the blame for the current crisis on the lowering of U.S. interest rates after the dotcom bust or, even better—in a “buck stops somewhere else” sort of way—on the flow of savings out of China. Some on the right like to complain about Fannie Mae or Freddie Mac, or even about longer-standing efforts to promote broader homeownership. And, of course, it is axiomatic to everyone that the regulators responsible for “safety and soundness” were fast asleep at the wheel.
But 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.
The financial industry has not always enjoyed such favored treatment. But for the past 25 years or so, finance has boomed, becoming ever more powerful. The boom began with the Reagan years, and it only gained strength with the deregulatory policies of the Clinton and George W. Bush administrations. Several other factors helped fuel the financial industry’s ascent. Paul Volcker’s monetary policy in the 1980s, and the increased volatility in interest rates that accompanied it, made bond trading much more lucrative. The invention of securitization, interest-rate swaps, and credit-default swaps greatly increased the volume of transactions that bankers could make money on. And an aging and increasingly wealthy population invested more and more money in securities, helped by the invention of the IRA and the 401(k) plan. Together, these developments vastly increased the profit opportunities in financial services.
Not surprisingly, Wall Street ran with these opportunities. From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent. Pay rose just as dramatically. From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007.
The great wealth that the financial sector created and concentrated gave bankers enormous political weight—a weight not seen in the U.S. since the era of J.P. Morgan (the man). In that period, the banking panic of 1907 could be stopped only by coordination among private-sector bankers: no government entity was able to offer an effective response. But that first age of banking oligarchs came to an end with the passage of significant banking regulation in response to the Great Depression; the reemergence of an American financial oligarchy is quite recent.
To Read the Entire Essay
by Simon Johnson
The Atlantic Monthly
...
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.
Top investment bankers and government officials like to lay the blame for the current crisis on the lowering of U.S. interest rates after the dotcom bust or, even better—in a “buck stops somewhere else” sort of way—on the flow of savings out of China. Some on the right like to complain about Fannie Mae or Freddie Mac, or even about longer-standing efforts to promote broader homeownership. And, of course, it is axiomatic to everyone that the regulators responsible for “safety and soundness” were fast asleep at the wheel.
But 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.
The financial industry has not always enjoyed such favored treatment. But for the past 25 years or so, finance has boomed, becoming ever more powerful. The boom began with the Reagan years, and it only gained strength with the deregulatory policies of the Clinton and George W. Bush administrations. Several other factors helped fuel the financial industry’s ascent. Paul Volcker’s monetary policy in the 1980s, and the increased volatility in interest rates that accompanied it, made bond trading much more lucrative. The invention of securitization, interest-rate swaps, and credit-default swaps greatly increased the volume of transactions that bankers could make money on. And an aging and increasingly wealthy population invested more and more money in securities, helped by the invention of the IRA and the 401(k) plan. Together, these developments vastly increased the profit opportunities in financial services.
Not surprisingly, Wall Street ran with these opportunities. From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent. Pay rose just as dramatically. From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007.
The great wealth that the financial sector created and concentrated gave bankers enormous political weight—a weight not seen in the U.S. since the era of J.P. Morgan (the man). In that period, the banking panic of 1907 could be stopped only by coordination among private-sector bankers: no government entity was able to offer an effective response. But that first age of banking oligarchs came to an end with the passage of significant banking regulation in response to the Great Depression; the reemergence of an American financial oligarchy is quite recent.
To Read the Entire Essay
Wednesday, June 02, 2010
On the Media: Banking Concern; Ad Hominem
On the Media (NPR)
Banking Concern
NPR’s economics correspondent Adam Davidson has spent the last two years breaking down the financial crisis with clear, simple language. But Davidson is stymied by regulation, which he says has proven resistant to even his brand of explanatory journalism.
To Listen to the Episode
Ad Hominem
Despite how overwhelmingly complex and boring financial regulation is, one group wants to help the public understand the issue – the banks and businesses who would be regulated. They’ve spent millions on ads and lobbyists to spin regulation as just another government takeover. Bob surveys their ad campaign.
To Listen to the Episode
Banking Concern
NPR’s economics correspondent Adam Davidson has spent the last two years breaking down the financial crisis with clear, simple language. But Davidson is stymied by regulation, which he says has proven resistant to even his brand of explanatory journalism.
To Listen to the Episode
Ad Hominem
Despite how overwhelmingly complex and boring financial regulation is, one group wants to help the public understand the issue – the banks and businesses who would be regulated. They’ve spent millions on ads and lobbyists to spin regulation as just another government takeover. Bob surveys their ad campaign.
To Listen to the Episode
Tuesday, June 01, 2010
Democracy Now: Juan Gonzalez -- Big Banks Making a Bundle On New Construction as Schools Bear the Cost
Juan Gonzalez: Big Banks Making a Bundle On New Construction as Schools Bear the Cost
Democracy Now
"Wealthy investors and major banks have been making windfall profits by using a little-known federal tax break to finance new charter-school construction," Democracy Now! co-host Juan Gonzalez write in the New York Daily News. "The program, the New Markets Tax Credit, is so lucrative that a lender who uses it can almost double his money in seven years."
Read/Listen/Watch
Democracy Now
"Wealthy investors and major banks have been making windfall profits by using a little-known federal tax break to finance new charter-school construction," Democracy Now! co-host Juan Gonzalez write in the New York Daily News. "The program, the New Markets Tax Credit, is so lucrative that a lender who uses it can almost double his money in seven years."
Read/Listen/Watch
Monday, May 31, 2010
Louis Brandeis: "The dominant element in our financial oligarchy..."
"The dominant element in our financial oligarchy is the investment banker. Associated banks, trust companies and life insurance companies are his tools... . The development of our financial oligarchy followed ... lines with which the history of political despotism has familiarized us: usurpation, proceeding by gradual encroachment rather than violent acts, subtle and often long-concealed concentration of distinct functions... . It was by processes such as these that Ceasar Augustus became master of Rome."
Louis Brandeis -- Other People's Money (1913)
Louis Brandeis -- Other People's Money (1913)
Frontline: The Warning
The Warning
Frontline (PBS)
In The Warning, veteran FRONTLINE producer Michael Kirk unearths the hidden history of the nation's worst financial crisis since the Great Depression. At the center of it all he finds Brooksley Born, who speaks for the first time on television about her failed campaign to regulate the secretive, multitrillion-dollar derivatives market whose crash helped trigger the financial collapse in the fall of 2008.
"I didn't know Brooksley Born," says former SEC Chairman Arthur Levitt, a member of President Clinton's powerful Working Group on Financial Markets. "I was told that she was irascible, difficult, stubborn, unreasonable." Levitt explains how the other principals of the Working Group -- former Fed Chairman Alan Greenspan and former Treasury Secretary Robert Rubin -- convinced him that Born's attempt to regulate the risky derivatives market could lead to financial turmoil, a conclusion he now believes was "clearly a mistake."
Born's battle behind closed doors was epic, Kirk finds. The members of the President's Working Group vehemently opposed regulation -- especially when proposed by a Washington outsider like Born.
"I walk into Brooksley's office one day; the blood has drained from her face," says Michael Greenberger, a former top official at the CFTC who worked closely with Born. "She's hanging up the telephone; she says to me: 'That was [former Assistant Treasury Secretary] Larry Summers. He says, "You're going to cause the worst financial crisis since the end of World War II."... [He says he has] 13 bankers in his office who informed him of this. Stop, right away. No more.'"
Greenspan, Rubin and Summers ultimately prevailed on Congress to stop Born and limit future regulation of derivatives. "Born faced a formidable struggle pushing for regulation at a time when the stock market was booming," Kirk says. "Alan Greenspan was the maestro, and both parties in Washington were united in a belief that the markets would take care of themselves."
Now, with many of the same men who shut down Born in key positions in the Obama administration, The Warning reveals the complicated politics that led to this crisis and what it may say about current attempts to prevent the next one.
"It'll happen again if we don't take the appropriate steps," Born warns. "There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience."
To Watch the Episode
Frontline (PBS)
In The Warning, veteran FRONTLINE producer Michael Kirk unearths the hidden history of the nation's worst financial crisis since the Great Depression. At the center of it all he finds Brooksley Born, who speaks for the first time on television about her failed campaign to regulate the secretive, multitrillion-dollar derivatives market whose crash helped trigger the financial collapse in the fall of 2008.
"I didn't know Brooksley Born," says former SEC Chairman Arthur Levitt, a member of President Clinton's powerful Working Group on Financial Markets. "I was told that she was irascible, difficult, stubborn, unreasonable." Levitt explains how the other principals of the Working Group -- former Fed Chairman Alan Greenspan and former Treasury Secretary Robert Rubin -- convinced him that Born's attempt to regulate the risky derivatives market could lead to financial turmoil, a conclusion he now believes was "clearly a mistake."
Born's battle behind closed doors was epic, Kirk finds. The members of the President's Working Group vehemently opposed regulation -- especially when proposed by a Washington outsider like Born.
"I walk into Brooksley's office one day; the blood has drained from her face," says Michael Greenberger, a former top official at the CFTC who worked closely with Born. "She's hanging up the telephone; she says to me: 'That was [former Assistant Treasury Secretary] Larry Summers. He says, "You're going to cause the worst financial crisis since the end of World War II."... [He says he has] 13 bankers in his office who informed him of this. Stop, right away. No more.'"
Greenspan, Rubin and Summers ultimately prevailed on Congress to stop Born and limit future regulation of derivatives. "Born faced a formidable struggle pushing for regulation at a time when the stock market was booming," Kirk says. "Alan Greenspan was the maestro, and both parties in Washington were united in a belief that the markets would take care of themselves."
Now, with many of the same men who shut down Born in key positions in the Obama administration, The Warning reveals the complicated politics that led to this crisis and what it may say about current attempts to prevent the next one.
"It'll happen again if we don't take the appropriate steps," Born warns. "There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience."
To Watch the Episode
Tuesday, May 25, 2010
John Bellamy Foster and Hannah Holleman: The Financial Elite
(I just got a subscription to Monthly Review and articles like this is why I support their efforts)
The Financial Power Elite
John Bellamy Foster and Hannah Holleman
Monthly Review Press
Only twice before in the last century—after the 1907 Bank Panic and following the 1929 Stock Market Crash—has outrage directed at U.S. financial elites reached today’s level, in the wake of the Great Financial Crisis of 2007-2009. A Time magazine poll in late October 2009 revealed that 71 percent of the public believed that limits should be imposed on the compensation of Wall Street executives; 67 percent wanted the government to force executive pay cuts on Wall Street firms that received federal bailout money; and 58 percent agreed that Wall Street exerted too much influence over government economic recovery policy.2
In January 2009 President Obama capitalized on the growing anger against financial interests by calling exorbitant bank bonuses subsidized by taxpayer bailouts “shameful,” and threatening new regulations. Journalist Matt Taibbi opened his July 2009 Rolling Stone article with: “The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” Former chief economist of the International Monetary Fund, Simon Johnson, published an article in the May 2009 Atlantic entitled “The Quiet Coup,” decrying the takeover by the “American financial oligarchy” of strategic positions within the federal government that give “the financial sector a veto over public policy.”3
The Financial Crisis Inquiry Commission, established by Washington in 2009, was charged with examining “the causes, domestic and global, of the current financial and economic crisis in the United States.” Its chairman, Phil Angelides, compared its task to that of the Pecora hearings in the 1930s, which exposed Wall Street’s speculative excesses and malfeasance. The first hearings in January 2010 began with the CEOs of some of the largest U.S. banks: Bank of America, JPMorgan Chase, Goldman Sachs, and Morgan Stanley.4
Meanwhile, the federal government has continued its program of salvaging the banks by funneling trillions of dollars in their direction through capital infusions, loan guarantees, subsidies, purchases of toxic waste, etc. This is a time of record bank failures, but also one of rapid financial concentration, as the already “too big to fail firms” at the apex of the financial system are becoming still bigger.
All of this raises the issue of an emerging financial power elite. Has the power of financial interests in U.S. society increased? Has Wall Street’s growing clout affected the U.S. state itself? How is this connected to the present crisis? We will argue that the financialization of U.S. capitalism over the last four decades has been accompanied by a dramatic and probably long-lasting shift in the location of the capitalist class, a growing proportion of which now derives its wealth from finance as opposed to production. This growing dominance of finance can be seen today in the inner corridors of state power.
The Money Trust
Anger over the existence of a “money trust” ruling the U.S. economy reached vast proportions at the end of the nineteenth century and the beginning of the twentieth. This was the time when investment bankers midwifed the birth of industrial behemoths, launching the new era of monopoly capital. In return, the investment banks obtained what the Austrian Marxist economist Rudolf Hiferding, in his great work, Financial Capital (1910), called “promoter’s profits.”5 Hilferding and the radical economist and sociologist Thorstein Veblen in the United States were the two greatest theorists of the rise of the new age of monopoly capital and financial control. Veblen declared that “the investment bankers collectively are the community custodians of absentee ownership at large, the general staff in charge of the pursuit of business….[T]he banking-houses which have engaged in this enterprise have come in for an effectual controlling interest in the corporations whose financial affairs they administer.”6 In the prototypical merger of the period, the creation in 1901 of the U.S. Steel Corporation, the syndicate of underwriters that J.P. Morgan and Co. put together to float the stock, received 1.3 million shares and over $60 million in commissions, of which J.P. Morgan and Co. got $12 million.7
The 1907 Bank Panic, during which J.P. Morgan himself intervened in the absence of a central bank to stabilize the financial sector, led to the creation in 1913 of the Federal Reserve System, aimed at providing banks with liquidity in a crisis. But it also led to charges, first issued in 1911 by Congressman Charles A. Lindbergh (father of the famous flier), of a “money trust” dominating U.S. finance and industry. Woodrow Wilson, then governor of New Jersey, declared: “The great monopoly in this country is the money monopoly.”
To Read the Rest of the Essay
The Financial Power Elite
John Bellamy Foster and Hannah Holleman
Monthly Review Press
You mean to tell me that the success of the [economic] program and my reelection hinges on the Federal Reserve and a bunch of fucking bond traders?
—President Bill Clinton
Only twice before in the last century—after the 1907 Bank Panic and following the 1929 Stock Market Crash—has outrage directed at U.S. financial elites reached today’s level, in the wake of the Great Financial Crisis of 2007-2009. A Time magazine poll in late October 2009 revealed that 71 percent of the public believed that limits should be imposed on the compensation of Wall Street executives; 67 percent wanted the government to force executive pay cuts on Wall Street firms that received federal bailout money; and 58 percent agreed that Wall Street exerted too much influence over government economic recovery policy.2
In January 2009 President Obama capitalized on the growing anger against financial interests by calling exorbitant bank bonuses subsidized by taxpayer bailouts “shameful,” and threatening new regulations. Journalist Matt Taibbi opened his July 2009 Rolling Stone article with: “The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” Former chief economist of the International Monetary Fund, Simon Johnson, published an article in the May 2009 Atlantic entitled “The Quiet Coup,” decrying the takeover by the “American financial oligarchy” of strategic positions within the federal government that give “the financial sector a veto over public policy.”3
The Financial Crisis Inquiry Commission, established by Washington in 2009, was charged with examining “the causes, domestic and global, of the current financial and economic crisis in the United States.” Its chairman, Phil Angelides, compared its task to that of the Pecora hearings in the 1930s, which exposed Wall Street’s speculative excesses and malfeasance. The first hearings in January 2010 began with the CEOs of some of the largest U.S. banks: Bank of America, JPMorgan Chase, Goldman Sachs, and Morgan Stanley.4
Meanwhile, the federal government has continued its program of salvaging the banks by funneling trillions of dollars in their direction through capital infusions, loan guarantees, subsidies, purchases of toxic waste, etc. This is a time of record bank failures, but also one of rapid financial concentration, as the already “too big to fail firms” at the apex of the financial system are becoming still bigger.
All of this raises the issue of an emerging financial power elite. Has the power of financial interests in U.S. society increased? Has Wall Street’s growing clout affected the U.S. state itself? How is this connected to the present crisis? We will argue that the financialization of U.S. capitalism over the last four decades has been accompanied by a dramatic and probably long-lasting shift in the location of the capitalist class, a growing proportion of which now derives its wealth from finance as opposed to production. This growing dominance of finance can be seen today in the inner corridors of state power.
The Money Trust
Anger over the existence of a “money trust” ruling the U.S. economy reached vast proportions at the end of the nineteenth century and the beginning of the twentieth. This was the time when investment bankers midwifed the birth of industrial behemoths, launching the new era of monopoly capital. In return, the investment banks obtained what the Austrian Marxist economist Rudolf Hiferding, in his great work, Financial Capital (1910), called “promoter’s profits.”5 Hilferding and the radical economist and sociologist Thorstein Veblen in the United States were the two greatest theorists of the rise of the new age of monopoly capital and financial control. Veblen declared that “the investment bankers collectively are the community custodians of absentee ownership at large, the general staff in charge of the pursuit of business….[T]he banking-houses which have engaged in this enterprise have come in for an effectual controlling interest in the corporations whose financial affairs they administer.”6 In the prototypical merger of the period, the creation in 1901 of the U.S. Steel Corporation, the syndicate of underwriters that J.P. Morgan and Co. put together to float the stock, received 1.3 million shares and over $60 million in commissions, of which J.P. Morgan and Co. got $12 million.7
The 1907 Bank Panic, during which J.P. Morgan himself intervened in the absence of a central bank to stabilize the financial sector, led to the creation in 1913 of the Federal Reserve System, aimed at providing banks with liquidity in a crisis. But it also led to charges, first issued in 1911 by Congressman Charles A. Lindbergh (father of the famous flier), of a “money trust” dominating U.S. finance and industry. Woodrow Wilson, then governor of New Jersey, declared: “The great monopoly in this country is the money monopoly.”
To Read the Rest of the Essay
Sunday, May 23, 2010
Best of the Left #364: Delusions of fascism, journalism and grandeur (Media)
#364 Delusions of fascism, journalism and grandeur (Media)
Best of the Left
Act 1: Glenn Beck’s Nazi Tourette’s – Daily Show
Song 1: Better be quite now – Elliott Smith
Act 2: The power of conservative media – Young Turks
Song 2: Everything In Its Right Place – Radiohead
Act 3: Dissecting NBC report on financial reform – Jimmy Dore
Song 3: Too much information – Duran Duran
Act 4: Bernie Goldberg fires back – Daily Show
Song 4: Knock yourself out – Jon Brion
Act 5: Fox News spins net neutrality – Young Turks
Song 5: So much more – Marc Robillard
Act 6: Jon Meacham on sale of Newsweek – Daily Show
Song 6: Who will buy – Oliver Twist
Act 7: Goldman defended in the media – Counterspin
Song 7: You’re a wolf – Sea Wolf
Act 8: Glenn to the mountaintop – Colbert Report
To Listen to the Episode
Best of the Left
Act 1: Glenn Beck’s Nazi Tourette’s – Daily Show
Song 1: Better be quite now – Elliott Smith
Act 2: The power of conservative media – Young Turks
Song 2: Everything In Its Right Place – Radiohead
Act 3: Dissecting NBC report on financial reform – Jimmy Dore
Song 3: Too much information – Duran Duran
Act 4: Bernie Goldberg fires back – Daily Show
Song 4: Knock yourself out – Jon Brion
Act 5: Fox News spins net neutrality – Young Turks
Song 5: So much more – Marc Robillard
Act 6: Jon Meacham on sale of Newsweek – Daily Show
Song 6: Who will buy – Oliver Twist
Act 7: Goldman defended in the media – Counterspin
Song 7: You’re a wolf – Sea Wolf
Act 8: Glenn to the mountaintop – Colbert Report
To Listen to the Episode
Friday, April 23, 2010
Wednesday, April 21, 2010
Monday, April 19, 2010
Claire Cain Miller: Out of the Loop in Silicon Valley
Out of the Loop in Silicon Valley
By CLAIRE CAIN MILLER
The New York Times
CANDACE FLEMING’S résumé boasts a double major in industrial engineering and English from Stanford, an M.B.A. from Harvard, a management position at Hewlett-Packard and experience as president of a small software company.
But when she was raising money for Crimson Hexagon, a start-up company she co-founded in 2007, she recalls one venture capitalist telling her that it didn’t matter that she didn’t have business cards, because all they would say was “Mom.”
Another potential backer invited her for a weekend yachting excursion by showing her a picture of himself on the boat — without clothes. When a third financier discovered that her husband was also a biking enthusiast, she says, he spent more time asking if riding affected her husband’s reproductive capabilities than he did focusing on her business plan.
Ultimately, none of the 30 venture firms she pitched financed her company. She finally raised $1.8 million in March 2008 from angel investors including Golden Seeds, a fund that emphasizes investing in start-ups led by women.
“I didn’t know things like this still happened,” says Ms. Fleming, 37. “But I know that, especially in risky times like the last couple years, some investors kind of retreat to investing via a template.” A company owned by a woman, she adds, “is just not the standard template.”
Though many people say that outright sexism is rare in the tech world these days, the barriers that Ms. Fleming encountered aren’t unusual. Tech communities in Silicon Valley and in other hubs — like New York, Austin, Tex., and Boston, where Ms. Fleming lives — pride themselves on operating as raw meritocracies ready to embrace anyone with a good idea, regardless of education, age or station in life.
For women, though, that narrative often unfolds differently.
Women own 40 percent of the private businesses in the United States, according to the Center for Women’s Business Research. But they create only 8 percent of the venture-backed tech start-ups, according to Astia, a nonprofit group that advises female entrepreneurs.
That disparity reaches beyond entrepreneurs. Women account for just 6 percent of the chief executives of the top 100 tech companies, and 22 percent of the software engineers at tech companies over all, according to the National Center for Women and Information Technology. And among venture capitalists, the population of financiers who control the purse strings for a majority of tech start-ups, just 14 percent are women, the National Venture Capital Association says.
That reality is even more complex when race is factored into the mix. Small percentages of workers in information technology are African-American, Asian or Hispanic, and that number is even smaller for women.
“It’s not like people are making an effort to exclude people, but I see very little diversity in the candidate pool,” says Aileen Lee, a partner at Kleiner Perkins Caufield & Byers, the big venture capital firm. She says this could reflect the different educational paths men and women follow in high school and college: men, for a variety of reasons, are more likely to pursue computer science and engineering degrees and subsequently rise through start-up or management ranks.
WOMEN now outnumber men at elite colleges, law schools, medical schools and in the overall work force. Yet a stark imbalance of the sexes persists in the high-tech world, where change typically happens at breakneck speed.
And analysts say more than social equity is at stake. A dearth of ideas and participation by women in the technology churn has business consequences as well.
The latest Web start-ups — for socializing, gaming and shopping — often attract more women than men as users. And many products from tech giants are aimed at women. But when Apple unveiled its new mobile computing device, it called it the iPad — a name that made many women wince with visions of feminine hygiene products.
Research indicates that investing in women as tech entrepreneurs is good for the bottom line. Venture-backed start-ups run by women use, on average, 40 percent less capital than start-ups run by men and are increasingly involved in successful initial public offerings of stock, according to a recent white paper by Cindy Padnos, a venture capitalist who compiled data from 100 studies on gender and tech entrepreneurship.
“When you have gender diversity in an organization, you have better innovation, and I don’t know where innovation is more important than in the high-tech world,” says Ms. Padnos, who recently founded Illuminate Ventures, which invests in start-ups led by women.
To Read the Rest of the Article
By CLAIRE CAIN MILLER
The New York Times
CANDACE FLEMING’S résumé boasts a double major in industrial engineering and English from Stanford, an M.B.A. from Harvard, a management position at Hewlett-Packard and experience as president of a small software company.
But when she was raising money for Crimson Hexagon, a start-up company she co-founded in 2007, she recalls one venture capitalist telling her that it didn’t matter that she didn’t have business cards, because all they would say was “Mom.”
Another potential backer invited her for a weekend yachting excursion by showing her a picture of himself on the boat — without clothes. When a third financier discovered that her husband was also a biking enthusiast, she says, he spent more time asking if riding affected her husband’s reproductive capabilities than he did focusing on her business plan.
Ultimately, none of the 30 venture firms she pitched financed her company. She finally raised $1.8 million in March 2008 from angel investors including Golden Seeds, a fund that emphasizes investing in start-ups led by women.
“I didn’t know things like this still happened,” says Ms. Fleming, 37. “But I know that, especially in risky times like the last couple years, some investors kind of retreat to investing via a template.” A company owned by a woman, she adds, “is just not the standard template.”
Though many people say that outright sexism is rare in the tech world these days, the barriers that Ms. Fleming encountered aren’t unusual. Tech communities in Silicon Valley and in other hubs — like New York, Austin, Tex., and Boston, where Ms. Fleming lives — pride themselves on operating as raw meritocracies ready to embrace anyone with a good idea, regardless of education, age or station in life.
For women, though, that narrative often unfolds differently.
Women own 40 percent of the private businesses in the United States, according to the Center for Women’s Business Research. But they create only 8 percent of the venture-backed tech start-ups, according to Astia, a nonprofit group that advises female entrepreneurs.
That disparity reaches beyond entrepreneurs. Women account for just 6 percent of the chief executives of the top 100 tech companies, and 22 percent of the software engineers at tech companies over all, according to the National Center for Women and Information Technology. And among venture capitalists, the population of financiers who control the purse strings for a majority of tech start-ups, just 14 percent are women, the National Venture Capital Association says.
That reality is even more complex when race is factored into the mix. Small percentages of workers in information technology are African-American, Asian or Hispanic, and that number is even smaller for women.
“It’s not like people are making an effort to exclude people, but I see very little diversity in the candidate pool,” says Aileen Lee, a partner at Kleiner Perkins Caufield & Byers, the big venture capital firm. She says this could reflect the different educational paths men and women follow in high school and college: men, for a variety of reasons, are more likely to pursue computer science and engineering degrees and subsequently rise through start-up or management ranks.
WOMEN now outnumber men at elite colleges, law schools, medical schools and in the overall work force. Yet a stark imbalance of the sexes persists in the high-tech world, where change typically happens at breakneck speed.
And analysts say more than social equity is at stake. A dearth of ideas and participation by women in the technology churn has business consequences as well.
The latest Web start-ups — for socializing, gaming and shopping — often attract more women than men as users. And many products from tech giants are aimed at women. But when Apple unveiled its new mobile computing device, it called it the iPad — a name that made many women wince with visions of feminine hygiene products.
Research indicates that investing in women as tech entrepreneurs is good for the bottom line. Venture-backed start-ups run by women use, on average, 40 percent less capital than start-ups run by men and are increasingly involved in successful initial public offerings of stock, according to a recent white paper by Cindy Padnos, a venture capitalist who compiled data from 100 studies on gender and tech entrepreneurship.
“When you have gender diversity in an organization, you have better innovation, and I don’t know where innovation is more important than in the high-tech world,” says Ms. Padnos, who recently founded Illuminate Ventures, which invests in start-ups led by women.
To Read the Rest of the Article
Thursday, April 08, 2010
Seeing Red Radio: Health Care & Financial “Reform”, Stop-Loss Hip-Hop, E. Jerusalem Building Boom and Arizona 2.3
Health Care & Financial “Reform”, Stop-Loss Hip-Hop, E. Jerusalem Building Boom and Arizona 2.3
Seeing Red Radio
Obama’s recently passed Health Care “Reform” Bill, and Christopher Dodd’s proposed Financial “Reform” legislation most recently exemplify the pro-corporate credentials of the Democratic party, solidifying their place as the US ruling class’ Team B. We then offer the hip-hop song that got Spc. Marc Hall imprisoned and facing a court martial, when he dared to call out the US Army’s disingenuous “stop-loss” policy, which forces members of the US Army to remain in the service beyond their contracted enlistments. We expose the the full extent of Israel’s plans for East Jerusalem, which seeks to effectively alter “facts on the ground”, and displace any hope of the “Peace Process”. We highlight the proposed legislation in Arizona which if passed will make every undocumented worker in the state a criminal “trespasser”. Lastly, we feature a day in Revolutionary History, March 25th, and remember the horror of one of America’s worst industrial disasters, the Triangle Shirtwaist Factory Fire.
Music:
Henry Geddes – Waiting for a State of Siege
Destroy Babylon feat. DXA – Shadow Army
Marc Hall – Stop Loss
David Rovics – Building a Wall
Ska P – Intifada
Immortal Technique – The Poverty of Philosophy
Background Music by T.P. Orchestre Poly-Rythmo de Cotonou
To Listen to the Episode
Seeing Red Radio
Obama’s recently passed Health Care “Reform” Bill, and Christopher Dodd’s proposed Financial “Reform” legislation most recently exemplify the pro-corporate credentials of the Democratic party, solidifying their place as the US ruling class’ Team B. We then offer the hip-hop song that got Spc. Marc Hall imprisoned and facing a court martial, when he dared to call out the US Army’s disingenuous “stop-loss” policy, which forces members of the US Army to remain in the service beyond their contracted enlistments. We expose the the full extent of Israel’s plans for East Jerusalem, which seeks to effectively alter “facts on the ground”, and displace any hope of the “Peace Process”. We highlight the proposed legislation in Arizona which if passed will make every undocumented worker in the state a criminal “trespasser”. Lastly, we feature a day in Revolutionary History, March 25th, and remember the horror of one of America’s worst industrial disasters, the Triangle Shirtwaist Factory Fire.
Music:
Henry Geddes – Waiting for a State of Siege
Destroy Babylon feat. DXA – Shadow Army
Marc Hall – Stop Loss
David Rovics – Building a Wall
Ska P – Intifada
Immortal Technique – The Poverty of Philosophy
Background Music by T.P. Orchestre Poly-Rythmo de Cotonou
To Listen to the Episode
Crisis and Resistance in the Neoliberal City : A Conversation with David Harvey, Max Rameau, Shiri Pasternak, and Esther Wang
Crisis and Resistance in the Neoliberal City : A Conversation with David Harvey, Max Rameau, Shiri Pasternak, and Esther Wang
Indy Reader
David Harvey: This foreclosure crisis, this financial crisis, has to be thought of as a crisis of the city, a crisis of urbanization – and if it’s a crisis of the city and of urbanization, then the solution has to be a reconfiguration of the city and a redirection of what urbanization is about. The pattern of this crisis is not anything new; and one of the things that happens in the U.S., and on the left in general, is that we seem sometimes to suffer from amnesia as to what has happened in the past. I would like to recall that the last biggest crisis period of capitalism, from around 1973 to 1982, was a deep crisis of urbanization. It began with the collapse of global property markets in the spring of 1973, leading to the bankruptcy of several financial institutions, followed of course by the Arab-Israeli war and the oil price hike (which everybody remembers more than they remember the property market crash). This was followed by a crisis of municipal finance and the disciplining of almost all cities, not only in the U.S., but around the world, to a new regime of financial terror, what I’d also call “neoliberal politics.” Understanding what this regime was about is crucial because it was part of the solution to the crisis of the 1970s, a solution which underpins the nature of the crisis we are currently in. This is a terribly important point to make, because how we come out of this crisis is almost certainly going to define the nature of the next crisis down the road – unless we decide to say, “To hell with capitalist crises! To hell with capitalism!”
In the 1970s it was clear that corporate America was in difficulty, economically and politically. Economically, it decided to try to get out of it by confronting and disciplining labor, big time, and it had a number of means to do that. First, it opened up immigration, for instance the 1965 Immigration Reform Act in this country. It’s very interesting to remember that in the 1960s and the 1970s the Germans were importing people from Turkey, the French were actually subsidizing bringing in immigrants from the Maghreb, Britain was of course accepting people from the ex-empire, and the Swedes were bringing in people from Yugoslavia. Immigration became one of the capitalist class’ main tools to try to solve the “problem” of the power of labor, the scarcity of labor, and the high level of wages. Second, they tried to use technological change to throw people out of work as much as possible, through labor-saving innovations. The third was the invention of interesting politicians with names like Reagan and Thatcher, whose main mission was of course to screw labor and destroy labor organization – they did it democratically while Pinochet did it through military violence in Chile. And finally if this political assault on labor didn’t work you could always offshore production to Mexico or the Philippines or Bangladesh or ultimately even to China.
By all these means, capitalists successfully disciplined labor in the 1970s and early 1980s, such that by the time you get to 1985 the labor question is no longer a serious barrier to capitalist accumulation. What that meant however, was that labor had very little power in the market, and as a result of that, real wages did not increase anywhere in the world, even in the United States, from the 1970s to the present day. We’ve been through 30 years of wage repression, guaranteeing capitalist profits, with a public policy which was actually oriented in that same direction. I always remember that Margaret Thatcher’s economic advisor said in effect, sometime after he left the postion, that he really believed that the fight against inflation was really a cover to bash the workers and create an industrial reserve army so that capitalists could have easy profits ever thereafter.
What we’ve seen since then is of course a tremendous increase in inequality and a tremendous concentration of wealth in the upper classes. The story we’re told is that the upper classes should have that wealth, after all, they invest, and as they invest they create jobs and aren’t-we-all-grateful-to-them-for-doing-so. The idea that we could actually get jobs by other means is ruled out of the picture, of course. But in fact the capitalist class doesn’t particularly care about creating jobs, it cares about making money. And it soon found, in the 1980s in particular, that it could make money by investing in asset values rather than in production, so it started to invest in the stock market, in property markets, in oil futures and so on. New markets were developed in which you could actually make even more money than you could spending your money on assets through purchasing derivatives of assets – and very soon you could buy on derivatives of insurances of derivatives of assets and so on.
What resulted was a financial asset bubble, rather than at real expansion of production and real jobs. The rest of us were reduced very frequently to service functions, reconfiguring the class structure. We went through deindustrialization in this country, through a reconfiguration of the nature of job structures and also of the kinds of people who can occupy those job structures. This was crucial to fueling the bubble that grew in the 1990s in particular. During that period, if you asked where to put your money, you were told to put it in property markets. It’s important to remember that we’ve had many financial crises over these last thirty years, and many of those crises have been related to urbanization, and have been about property. We had the Savings and Loans crisis in 1987-89, when somewhere around 600 or 800 banks or financial institutions were declared bankrupt, and this was a crisis tied very much to commercial property. In 1992 the Swedish banking system went bankrupt over excessive property development. In 1989 the Japanese economy crashed around land market prices. What we’ve had is a whole series of asset bubbles and we seem to forget what these asset bubbles are about. These asset bubbles are like Ponzi schemes: people put money in the stock market, the stock market rises, and people put more money in the stock market, and it just keeps going like that, the same with property markets, the same with oil futures. And this leads us to a point where, finally, the asset bubble breaks. It breaks big time this time, not like it did in 1987, which was sort of contained, but in a much bigger way, that becomes global immediately, as the 1973-75 crisis was global. That then poses the problem: what exactly are we going to do about this?
Now the answer to this lies in the way we came out of the crisis in the 1970s, when the New York investment banks acquired vast quantities of money from recycling petro dollars. Their big problem was where to invest it–the economy wasn’t doing well, so where do you put your money to make a sufficient rate of return? One of the things they decided on was lending to developing countries–because the good thing about lending to countries is that countries can’t disappear, you know where they are and you know you can go get your money. So in the 1970s they lent to places like Mexico. Then they raised the interest rates and Mexico couldn’t pay, and was going to go bankrupt–which meant that the New York investment banks could go bankrupt. So at that point, the government stepped in, the treasury and the IMF got together, and they bailed out Mexico so that Mexico could bailout the New York banks. But they bailed out Mexico in such a way that the Mexican population suffered a drop in living standards of about 20% in the next two to five years. This is what’s called saving the banks and socking it to the people.
Now I defy you to look at what’s been going on in this country in terms of its public policy and say its anything other than saving the banks and socking it to the people. We’re the ones who are paying, they are the ones who are benefitting. This is a class project, it was a class project back in the 1970s and it continues to be one now. If we come out of this crisis with this class project intact then we are in deep trouble. We have to turn it around in such a way that government policy gets turned into support of the people, not support of the banks. The banks should be nationalized, turned into public utilities which serve people, not capital. And this is something on which we really need to concentrate our ideas on, right now. In particular, the biggest danger of all is that the stimulus package which is being passed is going to be handed out to mayors, handed out to cities, handed out all over the place, in such a way that there is absolutely no control over exactly what’s going to be done with it. So what’s going to be done with it is that people are going to be use it to fund their favorite projects. Mayor Bloomberg’s favorite project is to give $45 million to retrain Wall Street executives, which seems to me an astonishing way in which to spend the money – but that’s the way Mayor Bloomberg thinks. But I think we have different ideas; in New York, together with the some of the social movements who are forming the Right To The City group, we would like to suggest a whole different set of ways the stimulus package could be spent in order to benefit people rather than capital. Along with that, we have the supreme irrationality that you have tent cities arising in California and elsewhere, increasing homelessness, at the same time that you have all these vacant properties around. Is that a rational situation? And it seems that this is a situation where political activism can take very direct action–for instance, Picture the Homeless in NYC tried to commandeer a building last week–and this is the kind of thing we need to be supporting publicly as much as we can.
To Read the Rest of the Panel Discussion
Indy Reader
David Harvey: This foreclosure crisis, this financial crisis, has to be thought of as a crisis of the city, a crisis of urbanization – and if it’s a crisis of the city and of urbanization, then the solution has to be a reconfiguration of the city and a redirection of what urbanization is about. The pattern of this crisis is not anything new; and one of the things that happens in the U.S., and on the left in general, is that we seem sometimes to suffer from amnesia as to what has happened in the past. I would like to recall that the last biggest crisis period of capitalism, from around 1973 to 1982, was a deep crisis of urbanization. It began with the collapse of global property markets in the spring of 1973, leading to the bankruptcy of several financial institutions, followed of course by the Arab-Israeli war and the oil price hike (which everybody remembers more than they remember the property market crash). This was followed by a crisis of municipal finance and the disciplining of almost all cities, not only in the U.S., but around the world, to a new regime of financial terror, what I’d also call “neoliberal politics.” Understanding what this regime was about is crucial because it was part of the solution to the crisis of the 1970s, a solution which underpins the nature of the crisis we are currently in. This is a terribly important point to make, because how we come out of this crisis is almost certainly going to define the nature of the next crisis down the road – unless we decide to say, “To hell with capitalist crises! To hell with capitalism!”
In the 1970s it was clear that corporate America was in difficulty, economically and politically. Economically, it decided to try to get out of it by confronting and disciplining labor, big time, and it had a number of means to do that. First, it opened up immigration, for instance the 1965 Immigration Reform Act in this country. It’s very interesting to remember that in the 1960s and the 1970s the Germans were importing people from Turkey, the French were actually subsidizing bringing in immigrants from the Maghreb, Britain was of course accepting people from the ex-empire, and the Swedes were bringing in people from Yugoslavia. Immigration became one of the capitalist class’ main tools to try to solve the “problem” of the power of labor, the scarcity of labor, and the high level of wages. Second, they tried to use technological change to throw people out of work as much as possible, through labor-saving innovations. The third was the invention of interesting politicians with names like Reagan and Thatcher, whose main mission was of course to screw labor and destroy labor organization – they did it democratically while Pinochet did it through military violence in Chile. And finally if this political assault on labor didn’t work you could always offshore production to Mexico or the Philippines or Bangladesh or ultimately even to China.
By all these means, capitalists successfully disciplined labor in the 1970s and early 1980s, such that by the time you get to 1985 the labor question is no longer a serious barrier to capitalist accumulation. What that meant however, was that labor had very little power in the market, and as a result of that, real wages did not increase anywhere in the world, even in the United States, from the 1970s to the present day. We’ve been through 30 years of wage repression, guaranteeing capitalist profits, with a public policy which was actually oriented in that same direction. I always remember that Margaret Thatcher’s economic advisor said in effect, sometime after he left the postion, that he really believed that the fight against inflation was really a cover to bash the workers and create an industrial reserve army so that capitalists could have easy profits ever thereafter.
What we’ve seen since then is of course a tremendous increase in inequality and a tremendous concentration of wealth in the upper classes. The story we’re told is that the upper classes should have that wealth, after all, they invest, and as they invest they create jobs and aren’t-we-all-grateful-to-them-for-doing-so. The idea that we could actually get jobs by other means is ruled out of the picture, of course. But in fact the capitalist class doesn’t particularly care about creating jobs, it cares about making money. And it soon found, in the 1980s in particular, that it could make money by investing in asset values rather than in production, so it started to invest in the stock market, in property markets, in oil futures and so on. New markets were developed in which you could actually make even more money than you could spending your money on assets through purchasing derivatives of assets – and very soon you could buy on derivatives of insurances of derivatives of assets and so on.
What resulted was a financial asset bubble, rather than at real expansion of production and real jobs. The rest of us were reduced very frequently to service functions, reconfiguring the class structure. We went through deindustrialization in this country, through a reconfiguration of the nature of job structures and also of the kinds of people who can occupy those job structures. This was crucial to fueling the bubble that grew in the 1990s in particular. During that period, if you asked where to put your money, you were told to put it in property markets. It’s important to remember that we’ve had many financial crises over these last thirty years, and many of those crises have been related to urbanization, and have been about property. We had the Savings and Loans crisis in 1987-89, when somewhere around 600 or 800 banks or financial institutions were declared bankrupt, and this was a crisis tied very much to commercial property. In 1992 the Swedish banking system went bankrupt over excessive property development. In 1989 the Japanese economy crashed around land market prices. What we’ve had is a whole series of asset bubbles and we seem to forget what these asset bubbles are about. These asset bubbles are like Ponzi schemes: people put money in the stock market, the stock market rises, and people put more money in the stock market, and it just keeps going like that, the same with property markets, the same with oil futures. And this leads us to a point where, finally, the asset bubble breaks. It breaks big time this time, not like it did in 1987, which was sort of contained, but in a much bigger way, that becomes global immediately, as the 1973-75 crisis was global. That then poses the problem: what exactly are we going to do about this?
Now the answer to this lies in the way we came out of the crisis in the 1970s, when the New York investment banks acquired vast quantities of money from recycling petro dollars. Their big problem was where to invest it–the economy wasn’t doing well, so where do you put your money to make a sufficient rate of return? One of the things they decided on was lending to developing countries–because the good thing about lending to countries is that countries can’t disappear, you know where they are and you know you can go get your money. So in the 1970s they lent to places like Mexico. Then they raised the interest rates and Mexico couldn’t pay, and was going to go bankrupt–which meant that the New York investment banks could go bankrupt. So at that point, the government stepped in, the treasury and the IMF got together, and they bailed out Mexico so that Mexico could bailout the New York banks. But they bailed out Mexico in such a way that the Mexican population suffered a drop in living standards of about 20% in the next two to five years. This is what’s called saving the banks and socking it to the people.
Now I defy you to look at what’s been going on in this country in terms of its public policy and say its anything other than saving the banks and socking it to the people. We’re the ones who are paying, they are the ones who are benefitting. This is a class project, it was a class project back in the 1970s and it continues to be one now. If we come out of this crisis with this class project intact then we are in deep trouble. We have to turn it around in such a way that government policy gets turned into support of the people, not support of the banks. The banks should be nationalized, turned into public utilities which serve people, not capital. And this is something on which we really need to concentrate our ideas on, right now. In particular, the biggest danger of all is that the stimulus package which is being passed is going to be handed out to mayors, handed out to cities, handed out all over the place, in such a way that there is absolutely no control over exactly what’s going to be done with it. So what’s going to be done with it is that people are going to be use it to fund their favorite projects. Mayor Bloomberg’s favorite project is to give $45 million to retrain Wall Street executives, which seems to me an astonishing way in which to spend the money – but that’s the way Mayor Bloomberg thinks. But I think we have different ideas; in New York, together with the some of the social movements who are forming the Right To The City group, we would like to suggest a whole different set of ways the stimulus package could be spent in order to benefit people rather than capital. Along with that, we have the supreme irrationality that you have tent cities arising in California and elsewhere, increasing homelessness, at the same time that you have all these vacant properties around. Is that a rational situation? And it seems that this is a situation where political activism can take very direct action–for instance, Picture the Homeless in NYC tried to commandeer a building last week–and this is the kind of thing we need to be supporting publicly as much as we can.
To Read the Rest of the Panel Discussion
Saturday, April 03, 2010
Noam Chomsky: Globalization Marches On -- Growing popular outrage has not challenged corporate power.
Globalization Marches On: Growing popular outrage has not challenged corporate power.
by Noam Chomsky
Commond Dreams
...
Bringing Obama to Heel
Popular anger finally evoked a rhetorical shift from the administration, which responded with charges about greedy bankers. "I did not run for office to be helping out a bunch of fat-cat bankers on Wall Street," Obama told 60 Minutes in December. This kind of rhetoric was accompanied with some policy suggestions that the financial industry doesn't like (e.g., the Volcker Rule, which would bar banks receiving government support from engaging in speculative activity unrelated to basic bank activities) and proposals to set up an independent regulatory agency to protect consumers.
Since Obama was supposed to be their man in Washington, the principal architects of government policy wasted little time delivering their instructions: Unless Obama fell back into line, they would shift funds to the political opposition. "If the president doesn't become a little more balanced and centrist in his approach, then he will likely lose" the support of Wall Street, Kelly S. King, a board member of the lobbying group Financial Services Roundtable, told the New York Times in early February. Securities and investment businesses gave the Democratic Party a record $89 million during the 2008 campaign.
Three days later, Obama informed the press that bankers are fine "guys," singling out the chairmen of the two biggest players, JP Morgan Chase and Goldman Sachs: "I, like most of the American people, don't begrudge people success or wealth. That's part of the free-market system," the president said. (Or at least "free markets" as interpreted by state capitalist doctrine.)
That turnabout is a revealing snapshot of Smith's maxim in action.
The architects of policy are also at work on a real shift of power: from the global work force to transnational capital.
Economist and China specialist Martin Hart-Landsberg explores the dynamic in a recent Monthly Review article. China has become an assembly plant for a regional production system. Japan, Taiwan and other advanced Asian economies export high-tech parts and components to China, which assembles and exports the finished products.
The Spoils of Power
The growing U.S. trade deficit with China has aroused concern. Less noticed is that the U.S. trade deficit with Japan and the rest of Asia has sharply declined as this new regional production system takes shape. U.S. manufacturers are following the same course, providing parts and components for China to assemble and export, mostly back to the United States. For the financial institutions, retail giants, and the owners and managers of manufacturing industries closely related to this nexus of power, these developments are heaven sent.
And well understood. In 2007, Ralph Gomory, head of the Alfred P. Sloan Foundation, testified before Congress, "In this new era of globalization, the interests of companies and countries have diverged. In contrast with the past, what is good for America's global corporations is no longer necessarily good for the American people."
Consider IBM. According to Business Week, by the end of 2008, more than 70 percent of IBM's work force of 400,000 was abroad. In 2009 IBM reduced its U.S. employment by another 8 percent.
For the work force, the outcome may be "grievous," in accordance with Smith's maxim, but it is fine for the principal architects of policy. Current research indicates that about one-fourth of U.S. jobs will be "offshorable" within two decades, and for those jobs that remain, security and decent pay will decline because of the increased competition from replaced workers.
This pattern follows 30 years of stagnation or decline for the majority as wealth poured into few pockets, leading to what has probably become the greatest inequality between the haves and the have-nots since the end of American slavery.
While China is becoming the world's assembly plant and export platform, Chinese workers are suffering along with the rest of the global work force. This is an unsurprising outcome of a system designed to concentrate wealth and power and to set working people in competition with one another worldwide.
Globally, workers' share in national income has declined in many countries-dramatically so in China, leading to growing unrest in that highly inegalitarian society.
So we have another significant shift in global power: from the general population to the principal architects of the global system, a process aided by the undermining of functioning democracy in the United States and other of the Earth's most powerful states.
The future depends on how much the great majority is willing to endure, and whether that great majority will collectively offer a constructive response to confront the problems at the core of the state capitalist system of domination and control.
If not, the results might be grim, as history more than amply reveals.
To Read the Entire Essay
by Noam Chomsky
Commond Dreams
...
Bringing Obama to Heel
Popular anger finally evoked a rhetorical shift from the administration, which responded with charges about greedy bankers. "I did not run for office to be helping out a bunch of fat-cat bankers on Wall Street," Obama told 60 Minutes in December. This kind of rhetoric was accompanied with some policy suggestions that the financial industry doesn't like (e.g., the Volcker Rule, which would bar banks receiving government support from engaging in speculative activity unrelated to basic bank activities) and proposals to set up an independent regulatory agency to protect consumers.
Since Obama was supposed to be their man in Washington, the principal architects of government policy wasted little time delivering their instructions: Unless Obama fell back into line, they would shift funds to the political opposition. "If the president doesn't become a little more balanced and centrist in his approach, then he will likely lose" the support of Wall Street, Kelly S. King, a board member of the lobbying group Financial Services Roundtable, told the New York Times in early February. Securities and investment businesses gave the Democratic Party a record $89 million during the 2008 campaign.
Three days later, Obama informed the press that bankers are fine "guys," singling out the chairmen of the two biggest players, JP Morgan Chase and Goldman Sachs: "I, like most of the American people, don't begrudge people success or wealth. That's part of the free-market system," the president said. (Or at least "free markets" as interpreted by state capitalist doctrine.)
That turnabout is a revealing snapshot of Smith's maxim in action.
The architects of policy are also at work on a real shift of power: from the global work force to transnational capital.
Economist and China specialist Martin Hart-Landsberg explores the dynamic in a recent Monthly Review article. China has become an assembly plant for a regional production system. Japan, Taiwan and other advanced Asian economies export high-tech parts and components to China, which assembles and exports the finished products.
The Spoils of Power
The growing U.S. trade deficit with China has aroused concern. Less noticed is that the U.S. trade deficit with Japan and the rest of Asia has sharply declined as this new regional production system takes shape. U.S. manufacturers are following the same course, providing parts and components for China to assemble and export, mostly back to the United States. For the financial institutions, retail giants, and the owners and managers of manufacturing industries closely related to this nexus of power, these developments are heaven sent.
And well understood. In 2007, Ralph Gomory, head of the Alfred P. Sloan Foundation, testified before Congress, "In this new era of globalization, the interests of companies and countries have diverged. In contrast with the past, what is good for America's global corporations is no longer necessarily good for the American people."
Consider IBM. According to Business Week, by the end of 2008, more than 70 percent of IBM's work force of 400,000 was abroad. In 2009 IBM reduced its U.S. employment by another 8 percent.
For the work force, the outcome may be "grievous," in accordance with Smith's maxim, but it is fine for the principal architects of policy. Current research indicates that about one-fourth of U.S. jobs will be "offshorable" within two decades, and for those jobs that remain, security and decent pay will decline because of the increased competition from replaced workers.
This pattern follows 30 years of stagnation or decline for the majority as wealth poured into few pockets, leading to what has probably become the greatest inequality between the haves and the have-nots since the end of American slavery.
While China is becoming the world's assembly plant and export platform, Chinese workers are suffering along with the rest of the global work force. This is an unsurprising outcome of a system designed to concentrate wealth and power and to set working people in competition with one another worldwide.
Globally, workers' share in national income has declined in many countries-dramatically so in China, leading to growing unrest in that highly inegalitarian society.
So we have another significant shift in global power: from the general population to the principal architects of the global system, a process aided by the undermining of functioning democracy in the United States and other of the Earth's most powerful states.
The future depends on how much the great majority is willing to endure, and whether that great majority will collectively offer a constructive response to confront the problems at the core of the state capitalist system of domination and control.
If not, the results might be grim, as history more than amply reveals.
To Read the Entire Essay
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