Showing posts with label Financial Crisis. Show all posts
Showing posts with label Financial Crisis. Show all posts

09 February 2011

Danny Schechter : Mummies and Dummies in Egypt

Cartoon from The English Blog.

Mummies and dummies:
The Egyptian crisis will only get deeper
thanks to lurking economic disaster


By Danny Schechter / The Rag Blog / February 9, 2011

The African journalist Nathanial Manheru chose a quote from French icon Andre Malraux’s Anti-Memoirs to understand current events in Egypt: “It is in Egypt that we are reminded that (man) invented the tomb.”

The tomb may be the appropriate metaphor not only for wannabe President-for-forever Hosni Mubarak but also for the 30-plus year neocolonial economic system that he has presided over. Not surprisingly, Frank Wisner Jr, the former U.S. Ambassador and son of a CIA dirty tricksters, wants the President to stick around -- in the country’s interest, of course.

And Western countries are now aligning with the people in the suites -- not the streets. So much for the bottom-up democracy that President Obama has appeared to support. We want freedom there -- but we can wait!

What’s next for Egypt?

The 82 year old President seems stuck in the final stages of his own mummification. At the same time we might consider the decisions he ratified that in a sense “dummified” the world.
  • He didn’t appear to have seen the crisis coming in the same way so-called “intelligence” agencies from the CIA to the Mossad missed it too. as they had the Iranian Revolution before it, and as the wise men of finance missed the financial crisis.

  • He hasn’t paid attention to Egypt’s imploding economy, firing an internationally respected finance mister and replacing him with Samir Radwan who is expected to turn the economy around miraculously amidst the chaos and uncertainty.

  • He reacted with a series of self-defeating (and country-destroying) measures from shutting down the Internet and crippling commerce to sending in an army of thugs that revealed just how brutal his critics insisted he always was. Not only is Mubarak still in power but his secret police, the Mukhabarat, are torturing away.

  • His violent overreaction against the world media -- the arrests and clubbing of journalists in public -- insured more coverage, not less, and made certain that the world would be glued to the dramatic confrontation -- the very thing TV cameras live for -- as Egypt showcased its own Superbowl of confrontation.
We all saw these events despite the efforts to muzzle the media.

But another scene went largely unseen: the crippling of Egypt’s economy that may prove to be more dangerous for the country’s future.

While Mubarak did not depart on the demonstrators' stated “day of departure,” something else did -- currency and investments. It’s been estimated that the country is losing $310 million a day, and that already adds up to several billion dollars.

Stock Market Digital reports that Egyptians and foreign investors have transferred hundreds of millions, much of it to South East Asia or Australia. Its' assets are at risk, says John Sfakianakis, chief economist at Banque Saudi Fransi. “If it does fail to compress this rioting situation the assets might get depleted soon enough.”

All of this has had a global impact, too, with stock markets battered worldwide and crude prices going up. Many experts fear a run on the banks when they reopen. It is significant that foreign interests now own more than half of Egypt’s banks. They were to open Sunday but fears of a bank run kept most closed. The Egyptian pound was down at its lowest level since 2005.

Former Goldman Sachs managing director Nomi Prins writes about this banking sector:
From 2004 to 2008, as the world economic crisis was being stoked by the U.S. banking system and its rapacious toxic asset machine, Mubarak’s regime was participating in a different way. Mubarak wasn’t pushing subprime loans onto Egyptians; instead, he was embarking on an economic strategy that entailed selling large pieces of Egypt’s banks to the highest international bidder. The result was a veritable grab-fest of foreign bank takeovers in the heart of Cairo...

Egypt attracted $42 billion worth of foreign capital into its borders, as one of the top investment “destinations” in the Middle East and Africa. “Hot” money entry was made easy, with no restrictions on foreign investment or repatriation of profits, and no taxes on dividends, capital gains or corporate bond interest...

Not surprisingly, those foreign speculation strategies didn’t bring less poverty or more jobs either. Indeed, the insatiable hunt for great deals, whether by banks, hedge funds, or private equity funds, as it inevitably does, had the opposite effect.
She reveals that Goldman Sachs invested in a major real estate company for the luxury market with millions living on $2 a day.

Now, a financial crisis threatens.

Reuters reports optimistically:
An exodus of foreign investors would probably be manageable. The central bank says its official reserves are $36 billion. Additional assets held with commercial banks -- regarded as unofficial reserves -- are estimated at around $20 billion. Before the crisis, foreigners held just 7 percent of Egypt’s total public debt, equivalent to a little over $11 billion.

The bigger worry is if Egyptians also take fright. The rich could decide to shift their money into gold, dollars, or overseas markets. The poor, many of whom are relatively new to banking, may choose to stash their life savings under mattresses instead, There is a serious danger of out of control inflation, Robin Amlot, managing editor of Banker Middle East, says people are starting to "run out of the basics, which will feed into inflation."
Moody's Investors Service has downgraded Egypt's government bond ratings to Ba2 from Ba1. Its outlook went to negative from stable. This will cost the country a significant amount of money.

Why is this happening? Clearly, financial institutions put their own interests before the public interest. The U.S. government may want to stabilize Egypt but the private sector and Wall Street have no compunction about destabilizing it if they think that is the best way to profit.

World Bank President Robert Zoellick admitted to a conference in Germany that rising unemployment and food prices are critical to “the instability in the region.” He did not discuss how World Bank policies had made conditions worse over the years.

Mumbarak’s model of economic growth had helped fund a small middle class without dealing with persistently high unemployment, rising food prices, inflation, and deepening poverty.

Canada’s CTV reports that
one-in-five Egyptians lives below the poverty line with little hope of rising above it as unemployment hovers around 10 percent. And those with jobs can do little to combat inflation soaring at a rate of more 12 percent a year.

Egyptian-born Montrealer Mohamed Kamel says when you factor in his homeland's inadequate healthcare and a neglected education system combined with a rampant culture of corruption it's easy to see where the frustration is coming from.
The Guardian reports that one person who has not suffered from these policies is none other than Hosni Mubarak.
President Hosni Mubarak's family fortune could be as much as $70bn (£43.5bn) according to analysis by Middle East experts, with much of his wealth in British and Swiss banks or tied up in real estate in London, New York, Los Angeles, and along expensive tracts of the Red Sea coast.
These problems and inequalites have long been urgent issues in Egypt, but in the last weeks they were overshadowed by the high-profile protests to oust the president. These economic issues have been almost invisible in the world media but will not be easily resolved with or without Mubarak.

The West now wants to put the brakes on the campaign to oust what many consider a modern Pharaoh. They want to replace him with someone like him. But as the Lebanese editor Rami Khouri puts it, “Just changing generals is not freedom.”

Any real revolution inevevitibly demands a transformation -- not just a transfer of power of the strong man at the top. The Egyptian people's fight for political and economic justice has a long way to go.

["News Dissector" Danny Schechter is a journalist, author, Emmy award winning television producer, and independent filmmaker. Schechter directed Plunder: The Crime of Our Time, and a companion book, The Crime of Our Time: Why Wall Street Is Not Too Big to Jail. Contact him at dissector@mediachannel.org.]

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14 October 2010

Roger Baker : Fed's $2 Trillion Won't Buy Much

Cartoon from Black Commentator.

Time to reboot?
Fed's big bucks may be drops in bucket


By Roger Baker / The Rag Blog / October 14, 2010

As is often the case, Bloomberg tells it like it is, although a little interpretation is needed to put things into their proper context. Rarely do we hear it put so plainly that the U.S. government is almost out of realistic options for reviving the U.S. economy:
For $2 trillion, Federal Reserve Chairman Ben S. Bernanke may buy little improvement in growth, employment or inflation over the next two years.

Firms with large-scale models of the U.S. economy such as IHS Global Insight, Moody’s Analytics Inc. and Macroeconomic Advisers LLC project only a moderate impact from additional Fed asset purchases. The firms estimate that the unemployment rate will remain around 9 percent or higher next year whether the Fed buys $500 billion or $2 trillion of U.S. Treasuries in a second round of unconventional stimulus.

“This is not a game changer for the economic outlook,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, whose models show that $500 billion of purchases would boost growth 0.1 percentage point in 2011 and leave the unemployment rate at 9 percent or above for the next two years. “There is clearly a risk that people start to perceive monetary policy as impotent.”

The meager impact shows the conundrum U.S. central bankers face. Interest rates near zero have failed to produce the intended cycle of borrowing and spending among consumers and businesses. Unemployment hovering near a 26-year high, partly a symptom of weak demand, keeps downward pressure on prices, and further declines in inflation would raise borrowing costs in real terms, making credit more expensive...
First they tried lowering interest rates, as they have done so often before, but that didn't work. This was partly because they did it so often in the past -- so it lost much effectiveness as a way to discipline risk during the successive Greenspan bubbles.

Then they bailed out the banks and injected a lot of Keynesian stimulus spending -- which requires Congressional approval. This had little result except to make it easy to agitate the U.S. middle class, who probably feared all their taxes would go to immigrants on welfare.

A combination of Congressional gridlock plus conservative anti-Obama politics is now preventing much more Roosevelt-like stimulus spending, no matter how great the need. Probably this opposition will continue after the elections, and until grassroots economic pain increases its political impact.
Economists say further asset purchases could underscore the limits of monetary policy, which is hobbled by consumers’ desire to pay down debt and the reluctance of Congress to approve additional fiscal stimulus.

“At the zero boundary on interest rates, the burden shifts to fiscal policy, and fiscal policy is immobile because of the politics,” said [Macroeconomic Advisers co-founder Laurence] Meyer. “So now, the burden has shifted back to monetary policy. You have to hope the economy’s own resilience and underlying strength is going to be enough to have growth a little bit above 3 percent.”
Having few other options left, the Federal Reserve (channeled by Bernanke) is announcing that they may create up to $2 trillion in new easy credit (as they have the legal right to do), and trade lots of cash to the banks in return for their suspect securities, although this would create few jobs. It kind of sounds bad, so the feds may need to relabel this remedy.
“We know the Fed is going to be doing something,” said David Rosenberg, chief economist at Gluskin Sheff and Associates Inc. in Toronto.

“The question is, in a cycle of contracting credit, how far will it work,” he said. “If taking rates to zero didn’t work, and if QE1 didn’t work, then the question, legitimately, is QE2 going to work?”

Quantitative easing refers to large-scale asset purchases as a tool of monetary policy. Bernanke has said the purchases support growth by lowering borrowing costs across a broad spectrum of debt as investors reallocate money they would normally invest in Treasuries into mortgage bonds, corporate notes, and other securities...

“It is a small but meaningful benefit and the recovery can take all the help it can get,” [Moody's Analytics' Mark] Zandi said. Because purchases could have such a low medium-term impact, Fed officials may recast the strategy in terms of aiming at a level on an inflation index rather than the rate of change on the index, Zandi said.
Despite the known drawbacks and weak results of such quantitative easing, the U.S. Treasury and federal Reserve officials feel the need to try something other than watching things get worse.
The Fed “really doesn’t have any alternative but to give this thing a whirl,” former Fed Governor Lyle Gramley, now senior economic adviser at Potomac Research Group in Washington. “It has a mandate to create maximum employment and price stability. It has to try.”
This all sounds kind of bad. Let us now leave Bloomberg for a second opinion which explains the same situation. On NPR's Money Planet, finance reporter Adam Davidson, who, like Paul Krugman, is a skilled popularizer of complex economic ideas, recently reported much the same thing. His perceptive blog explains why a second round of quantitative easing (called QE2 in the Bloomberg piece) -- essentially giving easy cash to the banks in return for their paper, is unlikely to revive the economy. The track record of QE is not good; Japan tried it and it didn't work:
"A big bank -- Bank of America, say -- has $50 billion in government bonds. They'd sell those bonds if anyone would pay enough for them, but nobody is willing to pay that much. So the bank just holds on to them.

With quantitative easing, the Fed comes along and says, "Hey, Bank of America, we'll buy those bonds for a little more than anyone else is willing to pay." Bank of America says, "OK, great, send us the money."

This is where the Fed gets to use central-bank magic. They pay for that $50 billion purchase in new money. They just invent it. That's what the Fed -- but nobody else -- gets to do.

So now Bank of America has $50 billion they need to do something with. The Fed is hoping that Bank of America will decide to lend that $50 billion to companies and people to invest or spend. That stimulates the whole economy.

It sounds great. Create new money, get it out there, everyone wins. But -- of course there's a but.

Nobody really knows if this works. It's still really controversial among economists. It's only been tried a few times and, as in the case of Japan, hasn't had the greatest results.

The Fed first used quantitative easing in 2008. It's now considering a second round, even though a lot of folks are against it.

While the economy is still this bad, the Fed really might only have two options: Do this as a desperation move, or do nothing."
Thus the biggest private bankers, operating through the Fed, have effective legal control over the whole U.S. economy. Just as Davidson says, the Federal Reserve has the right to create as much money as they please and give it to whom they please. Consequently, the public benefits from our U.S. banking system are ultimately of a trickle-down nature, subject to the fickle motivation of banking profit and Federal Reserve whim, often in alliance with the U.S. Treasury.

The Fed is busy creating money and offering it to the banks in the apparent hope that -- even in the absence of regulation or reform -- some of it will stay here and won't head toward more profitable investments that don't create U.S. jobs. I described this same situation last December, as we can see from the Stiglitz snip in my earlier Rag Blog article:
Stiglitz, 66, also said the Federal Reserve contributed to the financial crisis by failing to supervise banks or stem the housing bubble. He questioned proposals to give the central bank more authority to supervise firms whose failure might threaten the financial system. “Giving more power to an institution which has failed so miserably, with results that have imposed such costs on all of us, cannot be the right solution unless there are deep and fundamental reforms in the institution, of a kind that are beyond those currently being discussed,” he said.
In the absence of the banking reform that Stiglitz advocates, reform that would partly take control of the U.S. economy away from private hands, the bankers have little incentive to create risky, low-profit domestic jobs.

The bankers see little profit to be made from investing in such jobs, knowing that the U.S. consumers are under great financial stress. U.S. bankers won't invest much in the industrial production of globally traded goods, because U.S. labor costs are still high compared to those in China and the rest of the world.

Without strong outside regulation, the U.S. banks are free to use their $2 trillion (or whatever the Fed pleases to create and give to them) to speculate in the most profitable stuff. Things like gold, vital commodities like food, and in new industries abroad -- like in China, where iPhone production remains highly profitable because of cheap labor. GM now makes lots of its money by building its cars in China rather than the U.S.

All things considered, it looks like a good time to reboot the whole U.S. economic system.

[Roger Baker is a long time transportation-oriented environmental activist, an amateur energy-oriented economist, an amateur scientist and science writer, and a founding member of and an advisor to the Association for the Study of Peak Oil-USA. He is active in the Green Party and the ACLU, and is a director of the Save Our Springs Association and the Save Barton Creek Association. Mostly he enjoys being an irreverent policy wonk and writing irreverent wonkish articles for The Rag Blog.]

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12 October 2010

Danny Schechter : The Burden that Haunts Obama

Cartoon from BlackCommentator.
Listen to Thorne Dreyer's Sept. 28 interview with journalist and filmmaker Danny Schechter on Rag Radio here. To find all shows on the Rag Radio archives, go here.
Financial crisis continues to take its toll:
The burden that haunts Obama


By Danny Schechter / The Rag Blog / October 12, 2010

WASHINGTON, DC -- With the midterm election less than a month away and the economic crisis unabated, the Obama Administration may be at a crossroads.

The President’s own advisor, former Federal Reserve Chairman Paul Volcker, says the financial system is “broken.” High unemployment is not dropping and home foreclosures are up. The Obamacrats are being blamed for the economic downturn and the economy has become "the issue" of the November midterm elections.

The signs of an economic recovery are hard to see, and tensions with China, a leading trade partner, may be putting the country on the cusp of a trade war. Add to this the trillions poured into two wars we are not winning, and you have the elements of a perfect storm that some fear could lead to a depression or even a systemic collapse.

With the President’s popularity slipping and his opposition surging (at least in the media if not in the streets), the Democrats are expected to lose many seats, if not control of the Congress. Some in his party have been reduced to arguing, "we may not be great, but we are better than the other guys." There is an anti-incumbent mood in both parties and the rhetoric (but not yet the reality) of revolution is motivating parts of the electorate on both sides.

In the White House, the President has become more of a manager than a militant: initially trying to please all sides with appeals to bi-partisanship, and later with programs to placate the military and Wall Street.

Wall Street helped fund Obama’s 2008 victory. He seems to have believed that policies that would support and even enrich the private sector would lead to more job creation and cooperation.

That didn’t happen -- and now more and more billionaires are funding the Republicans with no pretense to promoting equality or to providing help for the middle class. The greed that drives these wealthy elites seems to know no bounds.

One by one, his chosen policy wonks have deserted the White House like those proverbial rats leaving a sinking ship.

First to go was wunderkind budget director Peter Orzag, then Christina Romer who headed his Council of Economic Advisors, followed by Larry Summers , the chief economic advisor and former Harvard President who was forced out of Harvard for remarks hostile to women. Finally, Obama’s Chief of Staff, former Congressman Rahm Emanuel, has also said sayonara to return to Chicago for a mayoral run.

Left in place -- but hardly left - is Treasury Secretary Tim Geithner, Obama’s Ambassador to Wall Street and point man with China. Geithner and his former boss, Ben Bernanke, who heads the Federal Reserve Bank, see themselves as servants of stability wedded to big banks and the strategy of the soon to be departed. They have no progressive pretensions. Little has changed for them.

The only claim this crew could make about achievement is that they averted something worse from happening. They may be correct, but proving a negative is difficult and doesn’t play well with voters who are not well-versed in the reasons behind the financial crisis. A “jobless recovery” is no recovery at all.

They are right now considering a new bailout being urged by the International Monetary Fund.

To placate his base and the unions, Obama has appointed another Harvard Professor, Elizabeth Warren. Her role will be to assist in shaping the new Consumer Protection Bureau that she herself proposed, the only financial reform that enjoys any popularity.

Warren is outspoken and supported by progressives, yet it is not clear if she will end up with any power to run what she had hoped would be an independent agency. However, it ended up being tucked away as a bureau in the Federal Reserve Bank. As a result, some analysts fear she is being co-opted and politically neutered.

On the left, filmmaker Michael Moore speaks for many disenchanted Obama supporters who feel betrayed by the President's predictable turn to the safety of the mushy middle. “Sadly, it's a situation the Democrats have brought upon themselves -- even though the majority of them didn't create the mess we're in,” he writes.
But they've had over a year and a half to start getting the job done to fix it. Instead, they've run scared ever since they took power. To many, the shellacking they're about to receive is one they deserve. But if you're of a mindset that believes a return to 2001-2008 would be sheer insanity, then you probably agree we've got no choice but to save the Democrats from themselves.
Moore's populist progressive proposals include indicting Wall Street criminals -- a proposal I put forward in my film Plunder -- and imposing a moratorium on home foreclosures, something President Franklin Roosevelt did as a part of the New Deal in the 1930s. (Some big banks began suspending foreclosures after it was revealed they were breaking the law in at least 23 states.)

Moore’s views were not even present at a Washington demonstration backed by the unions in early October. And they are a long way from being implemented for at least four reasons.

First, they would represent a U-turn for an Administration that is nervous about appearing too anti-business and that often postures left to move right. Obama’s financial and health care reform -- the administration's two big “accomplishments” -- reinforced corporate power more than transforming it.

Jailing Wall Street is difficult because years ago big business lobbyists assured that deregulation -- and its kissing cousin, decriminalization -- would make prosecuting financial crime far more difficult.

And then there’s the Congress under the sway of business interests with so-called “Blue Dog” Democratic conservatives, not to mention the rabidly anti-populist Republicans, able to filibuster and stop the kinds of changes Moore hopes for.

Oddly enough it was the banks that froze foreclosures in 23 States when fraudulent practices were unmasked. As Naked Capitalism noted,
We’ve discussed the fact the fact that banks have become so powerful in Florida that they have managed to get what amount to kangaroo foreclosure courts created. Not surprisingly, the assembly line imitation of justice railroads borrowers, and prevents legitimate grievances from being heard.

It turns out that banks in that state are so confident of their above the law status that they’ve also taken to casually changing the locks on and entering homes they don’t own, meaning haven’t foreclosed upon. This has become sufficiently common that the local press has taken notice.
And, very important, the Supreme Court remains under the sway of free market fundamentalists who genuflect to corporate needs in almost every decision.

So a stalemate remains in place with election rhetoric concealing the conventional wisdom and status quo orientation that make deeper reform unlikely. We seem to be in the era of one step forward and two back where the idea of change serves as an election slogan -- not a commitment to more fundamental repairs.

The political system is as broken as the economic one, and there is no Superman on the horizon to fly in and fix it.

["News Dissector" Danny Schechter is a journalist, author,
Emmy award winning television producer, and independent filmmaker who also writes, blogs, and speaks about media issues. Schechter directed Plunder: The Crime of Our Time, and a companion book, The Crime of Our Time: Why Wall Street Is Not Too Big to Jail. Contact him at dissector@mediachannel.org. This article was originally commissioned by Al Jazeera.]

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27 September 2010

FILM / Danny Schechter : Stone's 'Wall Street' Sequel Goes Soft

Journalist, author, Emmy winning television producer, and independent filmmaker Danny Schechter will be Thorne Dreyer's guest on Rag Radio on KOOP 91.7 FM in Austin, Tuesday, September 28, 2-3 p.m. (CST). To stream Rag Radio live, go here. To listen to this show after the broadcast, or to listen to earlier shows on Rag Radio, go here.
'Wall Street: Money Never Sleeps'
Oliver Stone's sequel misses the mark

By Danny Schechter / The Rag Blog / September 27, 2010
Lack of focus on corruption mars Stone's new Wall Street movie. It's heavy on atmosphere, light on anger.
The lead headline in The New York Times is “Extensive Fraud Appears to Mar Afghan Election." The line below is "A Blow to Credibility," as if anyone who follows Afghanistan, a country known for blatant and notorious corruption, would be at all surprised by this latest “blow.” This “blow” followed an earlier “blow” a few weeks back with the disclosure of the crash of the Kabul Bank with $300 billion still unaccounted for.

In America, another fraud: CNN reported the next morning that the pathetic blonde beauty-celebrity Lindsay Lohan put up $300,000 to get out of jail. That’s the kind of story American media considers worthy of constant “Breaking News” attention.

When will we see the headlines like "Extensive Fraud Appears to Mar Economic Recovery" or "Extensive Fraud Led to Financial Collapse"?

I ask this question, sort of knowing the answer, after two recent back-to-back film experiences.

Last Thursday I spoke at a packed screening of my film Plunder: The Crime of our Time that indicts financial crimes and corruption behind the financial crisis. The audience seemed overwhelmingly positive except for one Wall Streeter in the house who insisted that while there may have been “ethical lapses,” no crimes were committed, an expression of a conventional wisdom that most of the media has reinforced without investigating any evidence.

At a reception after the film in Suburban Long Island’s Cinema Arts Center, several people told me that one impact the crisis has had on them is sleeplessness because of anxiety over whether they can pay their bills and avoid joblessness and foreclosure.

Ironically, film director Oliver Stone also had sleep on his mind, as "Money Never Sleeps” is the subtitle of his remake of the movie Wall Street. To my surprise, the theater was not packed for a film distributed ironically by the money of mad mogul Rupert Murdoch’s 20th Century Fox company.

After watching the movie, I realized why the right-wing Rupert Murdoch could be comfortable enough releasing the latest from the nominally left-wing Oliver Stone.

The movie built an “explainer” around a love story that in the end was as much about child-parent conflicts and pretentious philosophizing as the background of the collapse of Wall Street -- which is treated, ultimately, from a “we are all to blame” viewpoint. In many ways the movie celebrates the brash culture of greed and excess of our era while we watch Michael Douglas' portrayal of Gordon Gekko, known in earlier times for the slogan “Greed Is Good.”

Now, greed is everywhere, and there ain’t much we can do about it.

Oh Oliver, really.

Personally, I saw many of the stories I reported in my film turn up in his -- with even the same lines -- leading me to unprovable suspicions after having given my film personally to Stone with a request for his help months earlier.

How naive of me. We are in different leagues, clearly, and maybe on different sides.

In an interview on CNN, Stone seemed to argue that free speech is more of an issue than the insolvency of the banks. He became totally obsessed with the rumors that brought down Bear Stearns, an issue I explore in depth. Stone told CNN:
What I found out, what shocked me back in 2009, was that Goldman Sachs and those type of banks were really going long and short at the same time and were actually selling out on their clients. I thought that was shocking information to me, as well as the power of rumor, which, amazing. We show the power of that and how it can destroy a company...

I'm not so sure that's good for the system, although it's more transparent. But it does lead to circles of viciousness and rumor and hype and a stock, as you know, drops. I mean, look at what happened a few months ago, right? The market just crashed. So what's going to happen?

It does scare me, and I think it's the nature of the modern world, I suppose.
The following comment was on the website Ml-implode.com, where the intervew was excerpted:
There you go, "rumor,” mentioned as a causative factor 4 or 5 times; insolvency/leverage? Zero. Those poor, poor Wall Street banks -- they're victims, you know.
The movie dances on all sides of the issues, actually featuring an on camera cameo by Stone, of course and, Grayon Carter, editor of Vanity Fair, who I quote in my film and book, The Crime of our Time, because he labeled the crisis “the greatest non-violent crime in history” Stone feigns to that view but ultimately rejects it.

Hedge Fund investor Jim Chanos, who I also quote, and who has called for the prosecution of wrongdoers, was even an advisor. It seems like he was wanted for his insight more on the atmospherics of the scene, not his demand for more perp walks.

Wall Street 2 features a father-son subtext as the young banker played by Shia LaBeouf watches as his mentor -- at a firm made to resemble Bear Stearns or Lehman Brothers -- commits suicide after the company is brought down by rumors and dirty tricks. In the end he marries and has a son with Gekko’s daughter who, natch, runs a left wing website.

The kid is named Louie after the banker who died. Undisclosed is that Stone’s dad who worked on Wall Street was also a Lou. Clearly this movie was as much about the personal psychodrama of Stone’s life as many of his earlier films were about the ghosts of Vietnam. His movies about Nixon and W also featured father-son conflicts. The banker who died by jumping into the subway, Frank Langella, recently played Nixon in the movie about David Frost’s interview.

More disturbing was the film’s failure to call for any action. It starts with Gekko getting out of jail and getting back in the industry. So jail, in the end means nothing.

Many Wall Streeters interviewed about the film seemed confused about its message and meandering plot points. Most (including myself) liked the luscious cinematography of New York that even profiled Bernie Madoff’s former office, as well as David Byrne’s great music. Said former banker Nomi Prins who is in Plunder, “ I liked it until halfway through, and then it was a hodge-podge bunch of events.”

The pro-free market Daily Bell wrote:
Always, Oliver Stone seems a propagandist and apologist... One so successful and perspicacious as Oliver Stone must know generally where the truth lies. Would it be any news to him that the United States is over-extended from a monetary and military standpoint? Or that Fed money printing was the proximate cause of the economic crash. It should not be too hard to figure this out. The Internet is full of such analyses.
Critic Roger Ebert liked the film but added, "I wish it had been angrier. I wish it had been outraged. Maybe Stone's instincts are correct, and American audiences aren't ready for that. They haven't had enough of Greed."

Did those “instincts” lead to the pandering, or was it just the logic of the market or Murdoch’s neutering its critical edge with an insistence to “just tell us a story, Oliver, if you want this to be big.”

In my experience, audiences I met were furious about what’s happened to them and the country. Late last week Paul Volker warned that the financial system is still broken. Others fear another crash is only just a matter of time. This reality is not evident on Oliver Stone’s radar screen.

After my screening, a man named Milton told me he is active in the Democratic Party, but that the Dems will not really act against Wall Street. “They don’t have the guts,” he said. Can the same be said about Oliver Stone, who loves the Hugo Chavez’s of the world South Of The Border, but echoes CNBC here at home?

["News Dissector" Danny Schechter is a journalist, author,
Emmy award winning television producer, and independent filmmaker who also writes, blogs, and speaks about media issues. Schechter directed Plunder: The Crime of Our Time, and a companion book, The Crime of Our Time: Why Wall Street Is Not Too Big to Jail. Contact him at dissector@mediachannel.org.]

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27 November 2009

A Dog's Life : America's Financial Mess

A walk in the park: Scout and Missy take a breather. Photo by Larry Ray / The Rag Blog.

A walk in the park:
A Felliniesque view of our financial mess

By Larry Ray / The Rag Blog / November 27, 2009

Walking my dogs under a crisp, cool, bright blue sky a few days ago in a nearby wooded park, I had an unusual, Felliniesque daydream. It all started when the peace and tranquility of the walk was broken by someone talking loudly on his cell phone, for all to hear, which is all too common today. A young fellow was totally absorbed in a verbal replay of his loss, recent physical pain and a love affair gone badly. He urgently shouted the details into his cellphone.

We picked up our pace to get away from the intrusion, but it seemed that he had decided to take the same trail behind us. He was detailing how he had cracked his ribs in some sort of a fall and how that had not hurt nearly as much as breaking up with the woman he still loved. He finally branched off on another trail leading away from us, the cell phone drama slowly fading out.

A relaxed free-form daydream began as we walked the familiar path. It turned into a Woody Guthrie moment for me. In a surprising flash, I had the title for a new country song: "That fall broke my ribs, but she broke my heart!" I hummed part of a stock three chord country western melody and tried out a couple of lines. It slowly became the sound track for the open-ended Fellini movie getting underway in my head.
It's getting tough out in this old world/
my back's against the wall/
The bank just took my house away/
now them credit cards ain't no good at all/
When I fell off that stock room ladder/
and landed hard on the concrete floor,/
They laid me off that afternoon.../
and I don't work at Walmart any more/
Then my wife took off and left me/
everything is falling apart/
That fall broke my ribs.../
but she broke my heart.
Hell, I've heard worse, and Woody might even have liked it. I bet the guy on the cell phone probably would have liked it too. I pictured this young man, working class, maybe in his late-twenties, probably a high school graduate, with maybe even a year or so of community college, as a metaphor for greedy banks, self-serving spineless politicians and millions of average folks just like him.

The daydream was also being fed with scenes from "The Card Game" a Frontline-New York Times co-production on PBS I had watched the night before. It laid bare the whole sorry, wild west story of the evolution of the American credit card and the half-hearted attempt to finally rein it in after almost a half century of unregulated abuse.

Frontline showed how banks have gotten away with predatory credit card practices and how a proposed Credit Card Control Act of 2009 was written with gaping loop holes that banks can use to continue exploitation of credit card holders... and still generously fund political campaigns.

I bet if I had actually talked to the fellow in the park and learned more about him other than what I was forced to overhear, he would have been a perfect example of what credit card issuers call the "unbanked market." People living from paycheck to paycheck who use credit cards as though they were money... money that people refuse to realize they don't have.

The whole credit card industry is designed to trap and exploit those people who don't read the fine print in their contracts and who run up huge balances, making only minimum payments from one card to another. They rack up ever-changing penalty fees with huge loan interest rates in a scheme better than Machiavelli could have ever imagined. According to the Federal Reserve Bank, 40% of American families spent more than they earned in 2008.

Certainly no bank has forced anyone to use a credit card. But a "free" credit card seems so innocent, so easy, and "we can always just pay off the balance" is a reassuring rationalization. Credit cards quickly became as American as imitation apple pie with two-thirds of the population owning one or more in 2008. Too many folks were living high on the hog with bank credit card loans that weren't legally considered "bank loans," thereby allowing them to remain unregulated with nary a peep from Capitol Hill. Most all existing governmental financial regulation put in place after the Great Depression of the 1930's had already been peeled away by the 1990's.

Even though there were no Flappers or speakeasies, the giddiness of our recent boom times was just like the 1920's, and just as imprudent. Americans with only modest incomes had learned to spend like they were making six figure salaries. Wallets are even designed to hold a dozen or so credit cards that slip in and out of an accordion fold of pockets for the mag-striped mañana money.

At the same time, home values were increasing at a record rate with no end in sight... but who was looking? Things seemed so good that second mortgage home loans were used to pay off huge credit card balances. Then in a blink, before the Republicans could get out of office in time, the inflated silver-dollar-studded Potemkin village blew over like a long line of doomed dominoes.

In no time folks were shouting their own Woody Guthrie lyrics over cell phones across the country. Homes now were valued at half of what they were mortgaged for. Americans again were jobless, out on the streets and forced to face harsh realities. Eighty-eight million accounts and credit lines, representing $751 billion in credit, have been closed since September of 2008.

My daydream in the park shifted to a classic Fellini scene with two huge cauldrons of smelly political broth bubbling and stewing up on Capitol Hill. They were both made from the same old soup stock. Senators in stained, flowing robes warned that the health care insurance gumbo may ultimately be indigestible. On an adjoining burner the low fat, credit card control consommé seemed way too thin but the Senators weren't in the least concerned. A parade of morbidly obese, angry people brandishing illegible placards passed by the cauldrons and Senators, demanding that they be left alone to just govern themselves. "No big cauldrons. No big cauldrons," they chanted.

The daydream is then jarred by a ticker tape crawl across my field of vision with endless data in large scrolling letters, "In September 2009 Americans currently owed $917 billion on revolving credit lines and $69 billion of it was past due, according to Federal Reserve statistics." In the daydream I then realized that was just a couple of months ago, and I was jarred back to reality briefly. Soon the dream slowly returned as a classic Fellini black and white wide shot of a totally empty beach with waves slowly rolling in and I expected to see "Fine" or "The End" in Italian dissolve in over the meaningless empty beach.

Instead, the Border Collies were tugging insistently on the leash, literally yanking me out of my free-running reverie. The guy that had been shouting into his cell phone was now walking toward us, looking down at the edges of the path. He nodded to me and asked, "You haven't seen a ring of keys have you?" I said I really hadn't been paying much attention but that I would keep an eye out for them. For a moment I wondered it there was yet maybe another song in that somewhere? How about, "I was looking for my keys while they towed away my truck." Woody, America could use you about now.

[Retired journalist Larry Ray is a Texas native and former Austin television news anchor. He also posts at The iHandbill.]

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07 October 2009

Freeland: Banking Goes Broadway


Pay Pals: Getting Big Bucks from Banks
By Bill Freeland / The Rag Blog / October 7, 2009

As MegaBank’s CFO, I’ve prepared the following guidelines for the upcoming meeting of the executive compensation committee.

(I say “upcoming” but, of course, I mean “long past.” It seems notice of this year’s meeting was once again sent late and as a result none of you were here. Don’t be concerned. It went off without a hitch. Simply sign below to confirm receipt of this back-dated mandatory communication.)

Item 1: Hello and Goodbye

First, let me welcome all of the newcomers -- which is to say, all of you. As you are aware, committee members are replaced annually to promote the bank’s goal of presenting policies that are always fresh -- at least to each of you.

The benefit in all of this is that there is little need for you to be concerned about details you’re likely to forget by the end of the meeting anyway. We apologize in advance if the new amenity we’ve added to the gathering creates a distraction. As I’m sure you know, access to an open bar during all the deliberations has recently become a widely accepted practice in our industry. What’s more, should you have any other needs that require attention (either here or in an adjoining room), feel free to consult the friendly companion who has been assigned to you for that purpose.

Item 2. Newly Strengthened Standards

In light of the recent financial crisis (or as we prefer to call it, “opportunity”), the time of business as usual is long past. Time was when hard work and political connections were all you needed to succeed in this business. Not anymore. Today we have a new partner: the federal government. As a result we are now free to move beyond merely rewarding success. In this new age we can concentrate exclusively on the rewards themselves.

Which means that the work of this committee can assume a sharply different focus. Having become really too big to fail also means we are now big enough to accept the rewards of this new status. Which is why this year’s bonus package, while it may appear exorbitant to others who have not achieved our level of systemic threat, we believe is simply too big to forego.

Item 3: Short-Term vs. Long Term Goals

If there is one thing this new realty has taught us it is that we need to focus more on long-term stability rather than short-term gain. This will require raising our sights above today’s quick profit and becoming more concerned with projecting earnings much further out. Say, a month or two -- at least. In this context, we hereby dedicate ourselves to the long-term goal of a minimum of two booms before every bust.

But this kind if discipline comes at a price. Which, of course, brings us again to the compensation committee. Long-term perspective merits long-term pay. Therefore, we will be proposing the industry’s first “better than life” lifetime pay. The checks keep coming as long as we (or our beneficiaries) keep cashing them.

Item 4. New Levels of Accountability

We have all grown up to respect the importance of the work ethic. In recent years that has meant the grinding demands of working from ten to four for a solid three days a week with only a two-hour break for lunch. But in this new age of bailouts and corporate consolidations, we call for a new definition of the term “work” itself. Who anymore really believes that this requires time actually spent at a desk. Or for that matter, even at the office.

No, work can now assume a new existential dimension. Now the new definition of “executive performance” can be inextricably joined to “executive existence” itself. We no longer merely do our jobs. We are our jobs. Recognizing this new reality, however, presents a unique challenge to the compensation committee.

Existence obviously requires a 24-hour commitment. And as a “24-hour executive,” our compensation must be similarly comprehensive. We exist around the clock. We should be paid around the clock. Seen from this perspective, executive pay that was once considered outrageous is now merely au currant.

And given what we’ve been through over these last months, that seems the least we can do for ourselves.

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28 September 2009

The Dollar: The Twilight of the American Empire

US dollar set to be eclipsed, World Bank president predicts. Photograph: Getty/Piet Mall.

US Dollar Set to Be Eclipsed, World Bank President Predicts
By Heather Stewart / September 28, 2009

United States would be mistaken to take for granted the dollar's place as the world's predominant reserve currency, says Zoellick

The United States must brace itself for the dollar to be usurped as the world's reserve currency as American dominance wanes in the wake of the financial crisis, the World Bank president, Robert Zoellick, warned yesterday.

Speaking ahead of the World Bank/IMF annual meetings in Istanbul, he said it was time for a "responsible globalisation", in which decision-making was shared between the old powers and developing countries such as China and India.

Ever since the post-second world war Bretton Woods agreement, which cemented the dollar's ascendancy over sterling, Americans have been able to rely on borrowing cheaply from the rest of the world as governments banked on the dollar as a safe bet. But Zoellick said the greenback's status could be under threat from the growing strength of the Chinese yuan and the euro.

"The United States would be mistaken to take for granted the dollar's place as the world's predominant reserve currency. Looking forward, there will increasingly be other options to the dollar," Zoellick told an audience at Johns Hopkins University in Washington. From now on, he said, confidence in the US currency – and its economy – would have to be earned. "The future for the United States will depend on whether and how it will address large deficits, recover without inflation that could undermine its credit and currency, and overhaul its financial system."

Zoellick's comments came as Beijing launched the first yuan-denominated bond available to outside investors, as it gradually makes its currency more exchangeable on international markets.

"I expect China will inevitably be drawn outward," he said. "Over 10 to 20 years, the renminbi [yuan] will evolve into a force in financial markets."

Several countries, including China and Russia, have repeatedly raised what they see as the problem of excessive dollar hegemony.

G20 as a steering group

Zoellick predicted that the tumultuous events of the credit crunch would eventually lead to a radically different world economic order. He welcomed the expanded role of the G20 group of nations, agreed by leaders at their summit in Pittsburgh last week; but warned against excluding bodies such as the World Trade Organisation and the International Monetary Fund, which have a much broader membership. "The G20 should operate as a 'steering group' across a network of countries and international institutions," he said.

Claire Melamed, ActionAid's head of policy, said the decision at Pittsburgh to shift economic decision-making away from the G8, which includes Italy and Canada but not China and India, could reverberate for decades. "The shift from the G8 to the G20 … has the potential to be hugely significant, breaking not just the power of the US but that particular group of countries that have had everything their own way for so long," she said.

Developing country governments have blamed the US, with its deregulated financial markets and decade-long borrowing binge, for dragging the world to the brink of the abyss over the past 12 months. Zoellick said all countries would have to learn to rely less on rampant American consumption to drive growth in the world economy.

"A more balanced and inclusive growth model for the world would benefit from multiple poles of growth," Zoellick said. "With investments in infrastructure, people, and private businesses, countries in Latin America, Asia and the broader Middle East could contribute to a 'New Normal' for the world economy."

Leaders in Pittsburgh also agreed to transfer some of the voting rights of over-represented rich countries at the IMF to under-represented developing economies, but detailed negotiations about how the balance of power will change – and which countries will agree to give up some of their votes – will go on until 2011.

At this week's meetings in Istanbul, which will be attended by the chancellor, Alistair Darling, and Mervyn King, Bank of England governor, the World Bank is likely to ask donor governments for more funding to mitigate the impact of the credit crunch on the world's poorest countries.

The IMF, meanwhile, is expected to give more details of how it will spot future crises and urge governments to take preventative policy measures – tasks set for it by the G20 last week.

© Guardian News and Media Limited 2009

Source / The Guardian

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22 September 2009

Wall Street Tycoons : Why Are None Behind Bars?

Royal / Capitalist Banker series / mejuan.

Why haven't any Wall Street tycoons been sent to the slammer?
The absence of what many would call justice stands out all the more because past financial crises always had their villains.
by Kevin G. Hall / September 22, 2009

WASHINGTON -- More than a year into the gravest financial crisis since the Great Depression, millions of Americans have seen their home values and retirement savings plunge and their jobs evaporate.

What they haven't seen are any Wall Street tycoons forced to swap their multi-million dollar jobs and custom-made suits for dishwashing and prison stripes.

There are plenty of civil and class-action lawsuits from aggrieved investors angered by the losses in their mortgage bonds, hedge funds or pensions. Regulators have stepped up their vigilance after the fact. But to date, no captain of finance tied to the crisis has walked the plank.

There have been some high-profile arrests and federal convictions of financial giants — such as Ponzi scheme king Bernard Madoff and Stanford Financial Group chairman Robert Allen Stanford. They weren't among the causes of the financial meltdown, however, just poster boys for an era of lax enforcement, weak regulation and devout faith in free markets.

"A lot of people who are responsible (for the crisis) seem to have gotten awfully rich in the process," said Barbara Roper, the director of investor protection for the Consumer Federation of America.

The absence of what many would call justice stands out all the more because past financial crises always had their villains. The depression-era had electricity and railroad magnate Samuel Insull, who partly inspired the movie "Citizen Kane." The savings and loan crisis of the 1980's had banker Charles Keating. Energy giant Enron Corp.'s spectacular collapse offered the late CEO Kenneth Lay, a Texas crony of President George W. Bush.

Yet there's no such poster child for the Great Recession, as today's crisis is now called.

One may yet emerge. The FBI has more than 580 large-scale corporate fraud investigations under way. At least 40 of them are scrutinizing players in sub-prime mortgage lending, which was the first domino to fall and triggered a global financial crisis.

"The investigations are very complex; it's not something that's going to turn overnight," said Bill Carter, a spokesman at FBI headquarters. "They are labor intensive. They involve a review of records."

To date, the closest thing to a prosecution of a major actor in the financial meltdown is a civil fraud case that the Securities and Exchange Commission brought on June 4 against Angelo Mozilo, the perma-tanned CEO of mortgage-lending giant Countrywide.

The SEC, in documents filed in a federal courtroom in central California, accuses Mozilo of "deliberately misleading investors" by misrepresenting the risk that Countrywide posed. The SEC also accused him of insider trading because he sold large shares of company stock and options ahead of what he allegedly knew was a coming collapse of mortgage lending.

Unless the Justice Department brings corresponding criminal charges, however, Mozilo could be hit with penalties and a ruined reputation if convicted — but he wouldn't see the inside of a jail cell.

Another big trial is imminent, however. On Oct. 13, a Brooklyn jury will begin hearing the federal prosecution of former Bear Stearns investment fund founder Ralph Cioffi and his fund manager Matthew Tannin.

Two of their hedge funds, offered to mega-wealthy investors and heavily weighted with investments in mortgage bonds backed by sub-prime loans to the weakest borrowers, collapsed in June and August of 2007. Their collapse signaled a gathering storm in mortgage finance that culminated in March 2008 with the government-brokered fire sale of their bank to JP Morgan Chase.

Both men were charged on June 19, 2008, with defrauding investors, passing off as safe the investment in mortgage bonds even though they described the market for sub-prime mortgages as "toast" in their own e-mails. Cioffi also faces charges of insider trading.

Lawyers for both men declined comment to McClatchy, but when their clients were arrested they called the pair scapegoats for the broader financial crisis.

Court documents filed in August show attorneys for the two are trying to suppress evidence that the executives' special trading notebooks have disappeared. The government suspects that Cioffi and Tannin, or someone helping them, made them disappear to cover their tracks.

Cioffi's attorneys also asked in August that the presiding judge quash the use of evidence that points to their clients' lavish lifestyle, including mansions and Ferraris. The documents accused federal prosecutors of "improper appeal to class prejudice." Tannin's attorneys joined the motion on Sept.15.

Royal / Capitalist Banker series / mejuan.

Class prejudice against bankers is what many Americans feel, evident in the death threats made against some former or current executives at insurer American International Group and other financial firms earlier this year. Wall Street switchboard operators at some institutions no longer provide addresses to phone callers.

Americans are angry because the suffering on Main Street is a spillover from the excessive risk taking and lavish compensation of executives who invested on behalf of the ultra-wealthy. Investors seeking outsized "alpha" returns turned to Wall Street, both seeking to make a short-term killing even if doing so eventually brought the near collapse of the financial system.

President Barack Obama alluded to this on Sept. 14 in a New York speech to commemorate the anniversary of the collapse of investment bank Lehman Brothers, which sent off a global financial panic.

"We will not go back to the days of reckless behavior and unchecked excess at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses," Obama said, promising new rules. "Those on Wall Street cannot resume taking risks without regard for consequences."

There are persistent but unconfirmed reports that the FBI and grand juries are looking at the e-mails of executives of failed institutions such as Bear Stearns, which pioneered the process of pooling sub-prime loans for sale to investors, and Lehman Brothers, which was a leader in these toxic products when it collapsed.

Records from AIG, which the Federal Reserve saved from collapse on Sept. 17, 2008, are also thought to be under review. The FBI reportedly is also looking at rating agencies Fitch, Moody's and Standard & Poor's to determine if they knowingly gave pools of sub-prime mortgages AAA investment-grade ratings, the best possible, despite evidence to the contrary.

Carter, the FBI spokesman, declined comment on ongoing investigations.

The lack of any prosecution to date doesn't mean authorities aren't investigating, added Ian McCaleb, a spokesman for the Department of Justice.

"There are ongoing cases. But from a prosecution standpoint, it takes a significant amount of time to develop these things. Most financial fraud cases are very complex and it could take a while to unravel the specifics of each case," he said. "I would characterize financial fraud as one of our top priorities."

Another possibility is that a new politically appointed Financial Crisis Inquiry Commission could turn up something that leads to prosecution. The 10-member panel, created by Congress this month, began probing the origins of the crisis, has subpoena power and could compel testimony. This could, however, lead to conflicts with ongoing legal investigations.

Another reason that there've been no arrests of the perpetrators of the financial meltdown is that agencies such as the SEC, which regulates trading in stocks and bonds, and the Commodity Futures Trading Commission, which oversees the trading of contracts for future delivery of energy and farm products, lack powers of criminal prosecution.

They can bring civil charges that result in fines or pass information to federal prosecutors or the FBI, which under the Bush administration was reorganized to focus less on white-collar crime and more on national security matters and crimes against children.

Legislation introduced in the House and Senate would make it easier for the CFTC to prosecute, especially allegations of market manipulation. Measures would lower the current high threshold for determining manipulation. In 35 years, the agency has won only a single manipulation case, and it's under appeal. The bills also would give commodities regulators powers to bring criminal cases.

"Folks who do the crime shouldn't just pay a fine, but do the time," said Bart Chilton, a CFTC commissioner who's championed the need for prosecutorial powers.

Because it saves time and money, regulators traditionally have negotiated settlements with bad actors, and fines often amount to a business cost.

That, too, may be changing, however. The SEC on Sept. 14 was hit with a stinging judicial rebuke for its half-hearted efforts to punish Bank of America for alleged disclosure failures in the government-brokered purchase of investment bank Merrill Lynch.

U.S. District Judge Jed Rakoff tossed out a $33 million settlement between the SEC and Bank of America, effectively calling it a fig leaf. The agency, he said, looked as if it was enforcing the law while the bank and its CEO, Kenneth Lewis, got away with a slap on the wrist.

"It is not fair, first and foremost, because it does not comport with the most elementary notions of justice and morality, in that it proposes that the shareholders who were the victims of the bank's alleged misconduct now pay the penalty for that misconduct," Rakoff wrote in a scathing 12-page opinion that ordered the complaint to proceed to trial.

© McClatchy Newspapers 2009

Source / McClatchy / CommonDreams

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03 September 2009

Chomsky: Global Crises and Dealing with Them


Crisis and Hope: Theirs and Ours
By Noam Chomsky / September 2009

Perhaps I may begin with a few words about the title. There is too much nuance and variety to make such sharp distinctions as theirs-and-ours, them-and-us. And neither I nor anyone can presume to speak for “us.” But I will pretend it is possible.

There is also a problem with the term “crisis.” Which one? There are numerous very severe crises, interwoven in ways that preclude any clear separation. But again I will pretend otherwise, for simplicity.

One way to enter this morass is offered by the June 11 issue of the New York Review of Books. The front-cover headline reads “How to Deal With the Crisis”; the issue features a symposium of specialists on how to do so. It is very much worth reading, but with attention to the definite article. For the West the phrase “the crisis” has a clear enough meaning: the financial crisis that hit the rich countries with great impact, and is therefore of supreme importance. But even for the rich and privileged that is by no means the only crisis, nor even the most severe. And others see the world quite differently. For example, in the October 26, 2008 edition of the Bangladeshi newspaper The New Nation, we read:

It’s very telling that trillions have already been spent to patch up leading world financial institutions, while out of the comparatively small sum of $12.3 billion pledged in Rome earlier this year, to offset the food crisis, only $1 billion has been delivered. The hope that at least extreme poverty can be eradicated by the end of 2015, as stipulated in the UN’s Millennium Development Goals, seems as unrealistic as ever, not due to lack of resources but a lack of true concern for the world’s poor.

The article goes on to predict that World Food Day in October 2009 “will bring . . . devastating news about the plight of the world’s poor . . . which is likely to remain that: mere ‘news’ that requires little action, if any at all.” Western leaders seem determined to fulfill these grim predictions. On June 11 the Financial Times reported, “the United Nations’ World Food Programme is cutting food aid rations and shutting down some operations as donor countries that face a fiscal crunch at home slash contributions to its funding.” Victims include Ethiopia, Rwanda, Uganda, and others. The sharp budget cut comes as the toll of hunger passes a billion—with over one hundred million added in the past six months—while food prices rise, and remittances decline as a result of the economic crisis in the West.

As The New Nation anticipated, the “devastating news” released by the World Food Programme barely even reached the level of “mere ‘news.’” In The New York Times, the WFP report of the reduction in the meager Western efforts to deal with this growing “human catastrophe” merited 150 words on page ten under “World Briefing.” That is not in the least unusual. The United Nations also released an estimate that desertification is endangering the lives of up to a billion people, while announcing World Desertification Day. Its goal, according to the Nigerian newspaper THISDAY, is “to combat desertification and drought worldwide by promoting public awareness and the implementation of conventions dealing with desertification in member countries.” The effort to raise public awareness passed without mention in the national U.S. press. Such neglect is all too common.

It may be instructive to recall that when they landed in what today is Bangladesh, the British invaders were stunned by its wealth and splendor. It was soon on its way to becoming the very symbol of misery, and not by an act of God.

As the fate of Bangladesh illustrates, the terrible food crisis is not just a result of “lack of true concern” in the centers of wealth and power. In large part it results from very definite concerns of global managers: for their own welfare. It is always well to keep in mind Adam Smith’s astute observation about policy formation in England. He recognized that the “principal architects” of policy—in his day the “merchants and manufacturers”—made sure that their own interests had “been most peculiarly attended to” however “grievous” the effect on others, including the people of England and, far more so, those who were subjected to “the savage injustice of the Europeans,” particularly in conquered India, Smith’s own prime concern in the domains of European conquest.

Smith was referring specifically to the mercantilist system, but his observation generalizes, and as such, stands as one of the few solid and enduring principles of both international relations and domestic affairs. It should not, however, be over-generalized. There are interesting cases where state interests, including long-term strategic and economic interests, overwhelm the parochial concerns of the concentrations of economic power that largely shape state policy. Iran and Cuba are instructive cases, but I will have to put these topics aside here.

The food crisis erupted first and most dramatically in Haiti in early 2008. Like Bangladesh, Haiti today is a symbol of misery and despair. And, like Bangladesh, when European explorers arrived, the island was remarkably rich in resources, with a large and flourishing population. It later became the source of much of France’s wealth. I will not run through the sordid history, but the current food crisis can be traced directly to 1915, Woodrow Wilson’s invasion: murderous, brutal, and destructive. Among Wilson’s many crimes was dissolving the Haitian Parliament at gunpoint because it refused to pass “progressive legislation” that would have allowed U.S. businesses to take over Haitian lands. Wilson’s Marines then ran a free election, in which the legislation was passed by 99.9 percent of the 5 percent of the public permitted to vote. All of this comes down through history as “Wilsonian idealism.”

Later, the United States Agency for International Development (USAID) instituted programs to turn Haiti into the “Taiwan of the Caribbean,” by adhering to the sacred principle of comparative advantage: Haiti must import food and other commodities from the United States, while working people, mostly women, toil under miserable conditions in U.S.-owned assembly plants. Haiti’s first free election, in 1990, threatened these economically rational programs. The poor majority entered the political arena for the first time and elected their own candidate, a populist priest, Jean-Bertrand Aristide. Washington adopted the standard operating procedures for such a case, moving at once to undermine the regime. A few months later came the anticipated military coup, and the resulting junta instituted a reign of terror, which was backed by Bush senior and even more fully by Clinton, despite pretenses. By 1994 Clinton decided that the population was sufficiently intimidated and sent U.S. forces to restore the elected president, but on the strict condition that he accept a harsh neoliberal regime. In particular, there must be no protection for the economy. Haitian rice farmers are efficient, but cannot compete with U.S. agribusiness that relies on huge government subsidies, thanks largely to Reagan, anointed High Priest of free trade with little regard to his record of extreme protectionism and state intervention in the economy.

Bailing out banks is not uppermost in the minds of the billion people now facing starvation.

There is nothing surprising about what followed: a 1995 USAID report observed that the “export-driven trade and investment policy”—that Washington mandated—will “relentlessly squeeze the domestic rice farmer.” Neoliberal policies dismantled what was left of economic sovereignty and drove the country into chaos, accelerated by Bush junior’s blocking of international aid on cynical grounds. In February 2004 the two traditional torturers of Haiti, France and the United States, backed a military coup and spirited President Aristide off to Africa. Haiti had, by then, lost the capacity to feed itself, leaving it highly vulnerable to food price fluctuation, the immediate cause of the 2008 food crisis.

The story is fairly similar in much of the world. In a narrow sense, it may be true enough that the food crisis results from Western lack of concern: a pittance could overcome its worst immediate effects. But more fundamentally it results from dedication to the basic principles of business-run state policy, the Adam Smith generalization. These are all matters that we too easily evade—along with the fact that bailing out banks is not uppermost in the minds of the billion people now facing starvation, not forgetting the tens of millions enduring hunger in the richest country in the world.

Also sidelined is a possible way to make a significant dent in the financial and food crises. It is suggested by the recent publication of the authoritative annual report on military spending by SIPRI, the Swedish peace research institute. The scale of military spending is phenomenal, regularly increasing. The United States is responsible for almost as much as the rest of the world combined, seven times as much as its nearest rival, China. There is no need to waste time commenting.

• • •


The distribution of concerns illustrates another crisis, a cultural crisis: the tendency to focus on short-term parochial gains, a core element of our socioeconomic institutions and their ideological support system. One illustration is the array of perverse incentives devised for corporate managers to enrich themselves, however grievous the impact on others—for example, the “too big to fail” insurance policies provided by the unwitting public.

There are also deeper problems inherent in market inefficiencies. One of these, now belatedly recognized to be among the roots of the financial crisis, is the under-pricing of systemic risk: if you and I make a transaction, we factor in the cost to us, but not to others. The financial industry, that means Goldman Sachs, if managed properly, will calculate the potential cost to itself if a loan goes bad, but not the impact on the financial system, which can be severe. This inherent deficiency of markets is well known. Ten years ago, at the height of the euphoria about efficient markets, two prominent economists, John Eatwell and Lance Taylor, wrote Global Finance at Risk, an important book in which they spelled out the consequences of these market inefficiencies and outlined means to deal with them. Their proposals conflicted sharply with the deregulatory rage that was then consuming the Clinton administration, under the leadership of those whom Obama has now called upon to put band-aids on the disaster they helped to create.

In substantial measure, the food crisis plaguing much of the South and the financial crisis of the North have a common source: the shift toward neoliberalism since the 1970s, which brought to an end the Bretton Woods system instituted by the United States and United Kingdom after World War II. The architects of Bretton Woods, John Maynard Keynes and Harry Dexter White, anticipated that its core principles—including capital controls and regulated currencies—would lead to rapid and relatively balanced economic growth and would also free governments to institute the social democratic programs that had very strong public support. Mostly, they were vindicated on both counts. Many economists call the years that followed, until the 1970s, the “golden age of capitalism.”

The “golden age” saw not only unprecedented and relatively egalitarian growth, but also the introduction of welfare-state measures. As Keynes and White were aware, free capital movement and speculation inhibit those options. To quote from the professional literature, free flow of capital creates a “virtual senate” of lenders and investors who carry out a “moment-by-moment referendum” on government policies, and if they find them irrational—that is, designed to help people, not profits—they vote against them by capital flight, attacks on currency, and other means. Democratic governments therefore have a “dual constituency”: the population, and the virtual senate, who typically prevail.

In his standard history of the financial system, Barry Eichengreen writes that, in earlier years, the costs imposed by market inefficiencies and failures could be imposed on the public, but that became difficult when governments were “politicized” by “universal male suffrage and the rise of trade unionism and parliamentary labor parties” and later by the radicalization of the general public during the Great Depression and the anti-fascist war. Accordingly, in the Bretton Woods system, “limits on capital mobility substituted for limits on democracy as a source of insulation from market pressures.” There is a corollary: dismantling of the Bretton Woods restrictions on capital during the neoliberal period restores a powerful weapon against democracy.

The neoliberal rollback of democracy—often called “democracy promotion”—has enabled other means of control and marginalization of the public. One illustration is the management of electoral extravaganzas in the United States by the public relations industry, peaking with Obama, who won the industry’s award for “marketer of the year for 2008.” Industry executives exulted in the business press that Obama was the highest achievement yet of those who “helped pioneer the packaging of candidates as consumer brands 30 years ago,” when they designed the Reagan campaign. The Financial Times paraphrased one marketing executive suggesting that the Obama triumph should “have more influence on boardrooms than any president since Ronald Reagan, [who] redefined what it was to be a CEO.” Reagan taught, “you had to give [your organization] a vision,” leading to the “reign of the imperial CEO” in the 1980s and 1990s. The synergy of running corporations and controlling politics, including the marketing of candidates as commodities, offers great prospects for the future management of democracy.

Where neoliberal rules have been observed since the ’70s, economic performance has generally deteriorated and social democratic programs have weakened.

For working people, small farmers, and the poor, at home and abroad, all of this spells regular disaster. One of the reasons for the radical difference in development between Latin America and East Asia in the last half century is that Latin America did not control capital flight, which often approached the level of its crushing debt and has regularly been wielded as a weapon against the threat of democracy and social reform. In contrast, during South Korea’s remarkable growth period, capital flight was not only banned, but could bring the death penalty.

Where neoliberal rules have been observed since the ’70s, economic performance has generally deteriorated and social democratic programs have substantially weakened. In the United States, which partially accepted these rules, real wages for the majority have largely stagnated for 30 years, instead of tracking productivity growth as before, while work hours have increased, now well beyond those of Europe. Benefits, which always lagged, have declined further. Social indicators—general measures of the health of the society—also tracked growth until the mid-’70s, when they began to decline, falling to the 1960 level by the end of the millennium. Economic growth found its way into few pockets, increasingly in the financial industries. Finance constituted a few percentage points of GDP in 1970, and has since risen to well over one-third, while productive industry has declined, and with it, living standards for much of the workforce. The economy has been punctuated by bubbles, financial crises, and public bailouts, currently reaching new highs. A few outstanding international economists explained and predicted these results from the start. But mythology about “efficient markets” and “rational choice” prevailed. This is no surprise: it was highly beneficial to the narrow sectors of privilege and power that provide the “principal architects of policy.”

• • •


The phrase “golden age of capitalism” might itself be challenged. The period can more accurately be called “state capitalism.” The state sector was, and remains, a primary factor in development and innovation through a variety of measures, among them research and development, procurement, subsidy, and bailouts. In the U.S. version, these policies operated mainly under a Pentagon cover as long as the cutting edge of the advanced economy was electronics-based. In recent years there has been a shift toward health-oriented state institutions as the cutting edge becomes more biology-based. The outcomes include computers, the Internet, satellites, and most of the rest of the IT revolution, but also much else: civilian aircraft, advanced machine tools, pharmaceuticals, biotechnology, and a lot more. The crucial state role in economic development should be kept in mind when we hear dire warnings about government intervention in the financial system after private management has once again driven it to crisis, this time, an unusually severe crisis, and one that harms the rich, not just the poor, so it merits special concern. It is a little odd, to say the least, to read economic historian Niall Ferguson in the New York Review of Books symposium on “The Crisis” saying that “the lesson of economic history is very clear. Economic growth . . . comes from technological innovation and gains in productivity, and these things come from the private sector, not from the state”—remarks that were probably written on a computer and sent via the Internet, which were substantially in the state sector for decades before they became available for private profit. His is hardly the clear lesson of economic history.

Large-scale state intervention in the economy is not just a phenomenon of the post-World War II era, either. On the contrary, the state has always been a central factor in economic development. Once they gained their independence, the American colonies were free to abandon the orthodox economic policies that dictated adherence to their comparative advantage in export of primary commodities while importing superior British manufacturing goods. Instead, the Hamiltonian economy imposed very high tariffs so that an industrial economy could develop: textiles, steel, and much else. The eminent economic historian Paul Bairoch describes the United States as “the mother country and bastion of modern protectionism,” with the highest tariffs in the world during its great growth period. And protectionism is only one of the many forms of state intervention. Protectionist policies continued until the mid-twentieth century, when the United States was so far in the lead that the playing field was tilted in the proper direction—that is, to the advantage of U.S. corporations. And when necessary, it has been tilted further, notably by Reagan, who virtually doubled protectionist barriers among other measures to rescue incompetent U.S. corporate management unable to compete with Japan.

From the outset the United States was following Britain’s lead. The other developed countries did likewise, while orthodox policies were rammed down the throats of the colonies, with predictable effects. It is noteworthy that the one country of the (metaphorical) South to develop, Japan, also successfully resisted colonization. Others that developed, like the United States, did so after they escaped colonial domination. Selective application of economic prinicples—orthodox economics forced on the colonies while violated at will by those free to do so—is a basic factor in the creation of the sharp North-South divide. Like many other economic historians, Bairoch concludes from a broad survey that “it is difficult to find another case where the facts so contradict a dominant theory” as the doctrine that free markets were the engine of growth, a harsh lesson that the developing world has learned again in recent decades. Even the poster child of neoliberalism, Chile, depends heavily on the world’s largest copper producer, Codelco, nationalized by Allende.

In earlier years the cotton-based economy of the industrial revolution relied on massive ethnic cleansing and slavery, rather severe forms of state intervention in the economy. Though theoretically slavery was ended with the Civil War, it emerged again after Reconstruction in a form that was in many ways more virulent, with what amounted to criminalization of African-American life and widespread use of convict labor, which continued until World War II. The industrial revolution, from the late nineteenth century, relied heavily on this new form of slavery, a hideous story that has only recently been exposed in its shocking detail in a very important study by Wall Street Journal bureau chief Douglas Blackmon. During the post-World War II “golden age,” African Americans were able for the first time to enjoy some level of social and economic advancement, but the disgraceful post-Reconstruction history has been partially reconstituted during the neoliberal years with the rapid growth of what some criminologists call “the prison-industrial complex,” a uniquely American crime committed continuously since the 1980s and exacerbated by the dismantling of productive industry.

People cannot be told that the advanced economy relies heavily on their risk-taking, while eventual profit is privatized, and ‘eventual’ can be a long time.

The American system of mass production that astonished the world in the nineteenth century was largely created in military arsenals. Solving the major nineteenth-century management problem—railroads—was beyond the capacity of private capital, so the challenge was handed over to the army. A century ago the toughest problems of electrical and mechanical engineering involved placing a huge gun on a moving platform to hit a moving target—naval gunnery. The leaders were Germany and England, and the outcomes quickly spilled over into the civilian economy. Some economic historians compare that episode to state-run space programs today. Reagan’s “Star Wars” was sold to industry as a traditional gift from government, and was understood that way elsewhere too: that is why Europe and Japan wanted to buy in. There was a dramatic increase in the state role after World War II, particularly in the United States, where a good part of the advanced economy developed in this framework.

• • •


State-guided modes of economic development require considerable deceit in a society where the public cannot be controlled by force. People cannot be told that the advanced economy relies heavily on their risk-taking, while eventual profit is privatized, and “eventual” can be a long time, sometimes decades. After World War II Americans were told that their taxes were going to defense against monsters about to overcome us—as in the ’80s, when Reagan pulled on his cowboy boots and declared a National Emergency because Nicaraguan hordes were only two days from Harlingen, Texas. Or twenty years earlier when LBJ warned that there are only 150 million of us and 3 billion of them, and if might makes right, they will sweep over us and take what we have, so we have to stop them in Vietnam.

For those concerned with the realities of the Cold War, and how it was used to control the public, one obvious moment to inspect carefully is the fall of the Berlin Wall twenty years ago and its aftermath. Celebration of the anniversary in November 2009 has already begun, with ample coverage, which will surely increase as the date approaches. The revealing implications of the policies that were instituted after the fall have, however, been ignored, as in the past, and probably will continue to be come November.

Reacting immediately to the Wall’s fall, the Bush senior administration issued a new National Security Strategy and budget proposal to set the course after the collapse of Kennedy’s “monolithic and ruthless conspiracy” to conquer the world and Reagan’s “evil empire”—a collapse that took with it the whole framework of domestic population control. Washington’s response was straightforward: everything will stay much the same, but with new pretexts. We still need a huge military system, but for a new reason: the “technological sophistication” of Third World powers. We have to maintain the “defense industrial base,” a euphemism for state-supported high-tech industry. We must also maintain intervention forces directed at the Middle East’s energy-rich regions, where the threats to our interests that required military intervention “could not be laid at the Kremlin’s door,” contrary to decades of pretense. The charade had sometimes been acknowledged, as when Robert Komer—the architect of President Carter’s Rapid Deployment Force (later Central Command), aimed primarily at the Middle East—testified before Congress in 1980 that the Force’s most likely use was not resisting Soviet attack, but dealing with indigenous and regional unrest, in particular the “radical nationalism” that has always been a primary concern throughout the world.

With the Soviet Union gone, the clouds lifted, and actual policy concerns were more visible for those who chose to see. The Cold War propaganda framework made two fundamental contributions: sustaining the dynamic state sector of the economy (of which military industry is only a small part) and protecting the interests of the “principal architects of policy” abroad.

The fate of NATO exposes the same concerns, and it is highly pertinent today. Prior to Gorbachev NATO’s announced purpose was to deter a Russian invasion of Europe. The legitimacy of that agenda was debatable right from the end of World War II. In May 1945 Churchill ordered war plans to be drawn up for Operation Unthinkable, aimed at “the elimination of Russia.” The plans—declassified ten years ago—are discussed extensively in the major scholarly study of British intelligence records, Richard Aldrich’s The Hidden Hand. According to Aldrich, they called for a surprise attack by hundreds of thousands of British and American troops, joined by one hundred thousand rearmed German soldiers, while the RAF would attack Soviet cities from bases in Northern Europe. Nuclear weapons were soon added to the mix. The official stand also was not easy to take too seriously a decade later, when Khrushchev took over in Russia, and soon proposed a sharp mutual reduction in offensive weaponry. He understood very well that the much weaker Soviet economy could not sustain an arms race and still develop. When the United States dismissed the offer, he carried out the reduction unilaterally. Kennedy reacted with a substantial increase in military spending, which the Soviet military tried to match after the Cuban missile crisis dramatically revealed its relative weakness. The Soviet economy tanked, as Khrushchev had anticipated. That was a crucial factor in the later Soviet collapse.

• • •


But the defensive pretext for NATO at least had some credibility. After the Soviet disintegration, the pretext evaporated. In the final days of the USSR, Gorbachev made an astonishing concession: he permitted a unified Germany to join a hostile military alliance run by the global superpower, though Germany alone had almost destroyed Russia twice in the century. There was a quid pro quo, recently clarified. In the first careful study of the original documents, Mark Kramer, apparently seeking to refute charges of U.S. duplicity, in fact shows that it went far beyond what had been assumed. It turns out, Kramer wrote this year in The Washington Quarterly, that Bush senior and Secretary of State James Baker promised Gorbachev that “no NATO forces would ever be deployed on the territory of the former GDR . . . NATO’s jurisdiction or forces would not move eastward.’’ They also assured Gorbachev “that NATO would be transforming itself into a more political organization.” There is no need to comment on that promise. What followed tells us a lot more about the Cold War itself, and the world that emerged from its ending.

As soon as Clinton came into office, he began the expansion of NATO to the east. The process accelerated with Bush junior’s aggressive militarism. These moves posed a serious security threat to Russia, which naturally reacted by developing more advanced offensive military capacities. Obama’s National Security Advisor, James Jones, has a still-more expansive vision: he calls for extending NATO further east and south, becoming in effect a U.S.-run global intervention force, as it is today in Afghanistan—“Afpak” as the region is now called—where Obama is sharply escalating Bush’s war, which had already intensified in 2004. NATO Secretary-General Jaap de Hoop Scheffer informed a NATO meeting that “NATO troops have to guard pipelines that transport oil and gas that is directed for the West,” and more generally have to protect sea routes used by tankers and other “crucial infrastructure” of the energy system. These plans open a new phase of Western imperial domination—more politely called “bringing stability” and “peace.”

Obama is following General Petraeus’s strategy to drive the Taliban into Pakistan, with potentially serious consequences for this unstable state.

As recently as November 2007, the White House announced plans for a long-term military presence in Iraq and a policy of “encouraging the flow of foreign investments to Iraq, especially American investments.” The plans were withdrawn under Iraqi pressure, the continuation of a process that began when the United States was compelled by mass demonstrations to permit elections. In Afpak Obama is building enormous new embassies and other facilities, on the model of the city-within-a-city in Baghdad. These new installations in Iraq and Afpak are like no embassies in the world, just as the United States is alone in its vast military-basing system and control of the air, sea, and space for military purposes.

While Obama is signaling his intention to establish a firm and large-scale presence in the region, he is also following General Petraeus’s strategy to drive the Taliban into Pakistan, with potentially quite serious consequences for this dangerous and unstable state facing insurrections throughout its territory. These are most extreme in the tribal areas crossing the British-imposed Durand line separating Afghanistan from Pakistan, which the Pashtun tribes on both sides of the artificial border have never recognized, nor did the Afghan government when it was independent. In an April publication of the Center for International Policy, one of the leading U.S. specialists on the region, Selig Harrison, writes that the outcome of Washington’s current policies might well be “what Pakistani ambassador to Washington Husain Haqqani has called an ‘Islamic Pashtunistan.’” Haqqani’s predecessor had warned that if the Taliban and Pashtun nationalists merge, “we’ve had it, and we’re on the verge of that.”

Prospects become still more ominous as drone attacks that embitter the population are escalated with their huge civilian toll. Also troubling is the unprecedented authority just granted General Stanley McChrystal—a special forces assassin—to head the operations. Petraeus’s own counter-insurgency adviser in Iraq, David Kilcullen, describes the Obama-Petraeus-McChrystal policies as a fundamental “strategic error,” which may lead to “the collapse of the Pakistani state,” a calamity that would “dwarf” other current crises.

It is also not encouraging that Pakistan and India are now rapidly expanding their nuclear arsenals. Pakistan’s were developed with Reagan’s crucial aid, and India’s nuclear weapons programs got a major shot in the arm from the recent U.S.-India nuclear agreement, which was also a sharp blow to the Non-Proliferation Treaty. India and Pakistan have twice come close to nuclear war over Kashmir, and have also been engaged in a proxy war in Afghanistan. These developments pose a very serious threat to world peace.

Returning home, it is worth noting that the more sophisticated are aware of the deceit that is employed as a device to control the public, and regard it as praiseworthy. The distinguished liberal statesman Dean Acheson advised that leaders must speak in a way that is “clearer than truth.” Harvard Professor of the Science of Government Samuel Huntington, who quite frankly explained the need to delude the public about the Soviet threat 30 years ago, urged more generally that power must remain invisible: “The architects of power in the United States must create a force that can be felt but not seen. Power remains strong when it remains in the dark; exposed to the sunlight it begins to evaporate.” An important lesson for those who want power to devolve to the public, a critical battle that is fought daily.

• • •


Whether the deceit about the monstrous enemy was sincere or not, if Americans a half century ago had been given the choice of directing their tax money to Pentagon programs to enable their grandchildren to have computers, iPods, the Internet, and so on, or putting it into developing a livable and sustainable socioeconomic order, they might have made the latter choice. But they had no choice. That is standard. There is a striking gap between public opinion and public policy on a host of major issues, domestic and foreign, and public opinion is often more sane, at least in my judgment. It also tends to be fairly consistent over time, despite the fact that public concerns and aspirations are marginalized or ridiculed—one very significant feature of the yawning “democratic deficit,” the failure of formal democratic institutions to function properly. That is no trivial matter. In a forthcoming book, the writer and activist Arundhati Roy asks whether the evolution of formal democracy in India and the United States—and not only there—“might turn out to be the endgame of the human race.” It is not an idle question.

It should be recalled that the American republic was founded on the principle that there should be a democratic deficit. James Madison, the main framer of the Constitutional order, held that power should be in the hands of “the wealth of the nation,” the “more capable set of men,” who have sympathy for property owners and their rights. Possibly with Shay’s Rebellion in mind, he was concerned that “the equal laws of suffrage” might shift power into the hands of those who might seek agrarian reform, an intolerable attack on property rights. He feared that “symptoms of a levelling spirit” had appeared sufficiently “in certain quarters to give warning of the future danger.” Madison sought to construct a system of government that would “protect the minority of the opulent against the majority.” That is why his constitutional framework did not have coequal branches: the legislature prevailed, and within the legislature, power was to be vested in the Senate, where the wealth of the nation would be dominant and protected from the general population, which was to be fragmented and marginalized in various ways. As historian Gordon Wood summarizes the thoughts of the founders: “The Constitution was intrinsically an aristocratic document designed to check the democratic tendencies of the period,” delivering power to a “better sort” of people and excluding “those who were not rich, well born, or prominent from exercising political power.”

In Madison’s defense, his picture of the world was pre-capitalist: he thought that power would be held by the “enlightened Statesman” and “benevolent philosopher,” men who are “pure and noble,” a “chosen body of citizens, whose wisdom may best discern the true interests of their country and whose patriotism and love of justice would be least likely to sacrifice it to temporary or partial considerations,” guarding the public interest against the “mischiefs” of democratic majorities. Adam Smith had a clearer vision.

‘The crisis’—the financial crisis—will presumably be patched up somehow, while leaving the institutions that created it pretty much in place.

There has been constant struggle over this constrained version of democracy, which we call “guided democracy” in the case of enemies: Iran right now, for example. Popular struggles have won a great many rights, but concentrated power and privilege clings to the Madisonian conception in ways that vary as society changes. By World War I, business leaders and elite intellectuals recognized that the population had won so many rights that they could not be controlled by force, so it would be necessary to turn to control of attitudes and opinions. Those are the years when the huge public relations industry emerged—in the freest countries of the world, Britain and United States, where the problem was most acute. The industry was devoted to what Walter Lippmann approvingly called “a new art in the practice of democracy,” the “manufacture of consent”—the “engineering of consent” in the phrase of his contemporary Edward Bernays, one of the founders of the public relations industry. Both Lippmann and Bernays took part in Wilson’s state propaganda organization, the Committee on Public Information, created to drive a pacifist population to jingoist fanaticism and hatred of all things German. It succeeded brilliantly. The same techniques, it was hoped, would ensure that the “intelligent minorities” would rule, undisturbed by “the trampling and the roar of a bewildered herd,” the general public, “ignorant and meddlesome outsiders” whose “function” is to be “spectators,” not “participants.” This was a central theme of the highly regarded “progressive essays on democracy” by the leading public intellectual of the twentieth century (Lippmann), whose thinking captures well the perceptions of progressive intellectual opinion: President Wilson, for example, held that an elite of gentlemen with “elevated ideals” must be empowered to preserve “stability and righteousness,” essentially the Madisonian perspective. In more recent years, the gentlemen are transmuted into the “technocratic elite” and “action intellectuals” of Camelot, “Straussian” neocons, or other configurations. But throughout, one or another variant of the doctrine prevails, with its Leninist overtones.

And on a more hopeful note, popular struggle continues to clip its wings, quite impressively so in the wake of 1960s activism, which had a substantial impact on civilizing the country and raised its prospects to a considerably higher plane.

• • •


Returning to what the West sees as “the crisis”—the financial crisis—it will presumably be patched up somehow, while leaving the institutions that created it pretty much in place. Recently the Treasury Department permitted early TARP repayments, which reduce bank capacity to lend, as was immediately pointed out, but allow the banks to pour money into the pockets of the few who matter. The mood on Wall Street was captured by two Bank of New York Mellon employees, who, as reported in The New York Times, “predicted their lives—and pay—would improve, even if the broader economy did not.”

The chair of the prominent law firm Sullivan & Cromwell offered the equally apt prediction that “Wall Street, after getting billions of taxpayer dollars, will emerge from the financial crisis looking much the same as before markets collapsed.” The reasons were pointed out, by, among others, Simon Johnson, former chief economist of the IMF: “Throughout the crisis, the government has taken extreme care not to upset the interests of the financial institutions, or to question the basic outlines of the system that got us here,” and the

elite business interests [that] played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse . . . 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.

Meanwhile “the government seems helpless, or unwilling, to act against them.” Again no surprise, at least to those who remember their Adam Smith.

But there is a far more serious crisis, even for the rich and powerful. It is discussed by Bill McKibben, who has been warning for years about the impact of global warming, in the same issue of the New York Review of Books that I mentioned earlier. His recent article relies on the British Stern report, which is very highly regarded by leading scientists and a raft of Nobel laureates in economics. On this basis McKibben concludes, not unrealistically, “2009 may well turn out to be the decisive year in the human relationship with our home planet.” In December a conference in Copenhagen is “to sign a new global accord on global warming,” which will tell us “whether or not our political systems are up to the unprecedented challenge that climate change represents.” He thinks the signals are mixed. That may be optimistic, unless there is a really massive public campaign to overcome the insistence of the managers of the state-corporate sector on privileging short-term gain for the few over the hope that their grandchildren will have a decent future.

At least some of the barriers are beginning to crumble—in part because the business world perceives new opportunities for profit. Even The Wall Street Journal, one of the most stalwart deniers, recently published a supplement with dire warnings about “climate disaster,” urging that none of the options being considered may be sufficient, and it may be necessary to undertake more radical measures of geoengineering, “cooling the planet” in some manner.

As always, those who suffer most will be the poor. Bangladesh will soon have a lot more to worry about than even the terrible food crisis. As the sea level rises, much of the country, including its most productive regions, might be under water. Current crises are almost sure to be exacerbated as the Himalayan glaciers continue to disappear, and with them the great river systems that keep South Asia alive. Right now, as glaciers melt in the mountain heights where Pakistani and Indian troops suffer and die, they expose the relics of their crazed conflict over Kashmir, “a pristine monument to human folly,” Roy comments with despair.

The picture might be much more grim than even the Stern report predicts. A group of MIT scientists have just released the results of what they describe as

the most comprehensive modeling yet carried out on the likelihood of how much hotter the Earth’s climate will get in this century, [showing] that without rapid and massive action, the problem will be about twice as severe as previously estimated six years ago—and could be even worse than that.

Worse because the model

does not fully incorporate other positive feedbacks that can occur, for example, if increased temperatures caused a large-scale melting of permafrost in arctic regions and subsequent release of large quantities of methane.

The leader of the project says, “There’s no way the world can or should take these risks,” and that “the least-cost option to lower the risk is to start now and steadily transform the global energy system over the coming decades to low or zero greenhouse gas-emitting technologies.” There is far too little sign of that.

While new technologies are essential, the problems go well beyond. We have to face up to the need to reverse the huge state-corporate social engineering projects of the post-World War II period, which quite purposefully promoted an energy-wasting and environmentally destructive fossil fuel-based economy. The state-corporate programs, which included massive projects of suburbanization along with destruction and then gentrification of inner cities, began with a conspiracy by General Motors, Firestone, and Standard Oil of California to buy up and destroy efficient electric public transportation systems in Los Angeles and dozens of other cities; they were convicted of criminal conspiracy and given a slap on the wrist. The federal government then took over, relocating infrastructure and capital stock to suburban areas and creating the massive interstate highway system, under the usual pretext of “defense.” Railroads were displaced by government-financed motor and air transport.

If I want to get home from work, the market offers me a choice between a Ford and a Toyota, but not between a car and a subway. That is a social decision.

The programs were understood as a means to prevent a depression after the Korean War. One of their Congressional architects described them as “a nice solid floor across the whole economy in times of recession.” The public played almost no role, apart from choice within the narrowly structured framework of options designed by state-corporate managers. One result is atomization of society and entrapment of isolated individuals with self-destructive ambitions and crushing debt. These efforts to “fabricate consumers” (to borrow Veblen’s term) and to direct people “to the superficial things of life, like fashionable consumption” (in the words of the business press), emerged from the recognition a century ago of the need to curtail democratic achievements and to ensure that the “opulent minority” are protected from the “ignorant and meddlesome outsiders.”

While state-corporate power was vigorously promoting privatization of life and maximal waste of energy, it was also undermining the efficient choices that the market does not provide—another destructive built-in market inefficiency. To put it simply, if I want to get home from work, the market offers me a choice between a Ford and a Toyota, but not between a car and a subway. That is a social decision, and in a democratic society, would be the decision of an organized public. But that is just what the dedicated elite attack on democracy seeks to undermine.

The consequences are right before our eyes in ways that are sometimes surreal. In May The Wall Street Journal reported:

U.S. transportation chief [Ray LaHood] is in Spain meeting with high-speed rail suppliers. . . . Europe’s engineering and rail companies are lining up for some potentially lucrative U.S. contracts for high-speed rail projects. At stake is $13 billion in stimulus funds that the Obama administration is allocating to upgrade existing rail lines and build new ones that could one day rival Europe’s fastest. . . . [LaHood is also] expected to visit Spanish construction, civil engineering and train-building companies.

Spain and other European countries are hoping to get U.S. taxpayer funding for the high-speed rail and related infrastructure that is badly needed in the United States. At the same time, Washington is busy dismantling leading sectors of U.S. industry, ruining the lives of the workforce and communities. It is difficult to conjure up a more damning indictment of the economic system that has been constructed by state-corporate managers. Surely the auto industry could be reconstructed to produce what the country needs, using its highly skilled workforce—and what the world needs, and soon, if we are to have some hope of averting major catastrophe. It has been done before, after all. During World War II the semi-command economy not only ended the Depression but initiated the most spectacular period of growth in economic history, virtually quadrupling industrial production in four years as the economy was retooled for war, and also laying the basis for the “golden age” that followed.

• • •


Warnings about the purposeful destruction of U.S. productive capacity have been familiar for decades and perhaps sounded most prominently by the late Seymour Melman. Melman also pointed to a sensible way to reverse the process. The state-corporate leadership has other commitments, but there is no reason for passivity on the part of the “stakeholders”—workers and communities. With enough popular support, they could take over the plants and carry out the task of reconstruction themselves. That is not a particularly radical proposal. One standard text on corporations, The Myth of the Global Corporation, points out, “nowhere is it written in stone that the short-term interests of corporate shareholders in the United States deserve a higher priority than all other corporate ‘stakeholders.’”

It is also important to remind ourselves that the notion of workers’ control is as American as apple pie. In the early days of the industrial revolution in New England, working people took it for granted that “those who work in the mills should own them.” They also regarded wage labor as different from slavery only in that it was temporary; Abraham Lincoln held the same view.

And the leading twentieth-century social philosopher, John Dewey, basically agreed. Much like ninetheenth-century working people, he called for elimination of “business for private profit through private control of banking, land, industry, reinforced by command of the press, press agents and other means of publicity and propaganda.” Industry must be changed “from a feudalistic to a democratic social order” based on workers’ control, free association, and federal organization, in the general style of a range of thought that includes, along with many anarchists, G.D.H. Cole’s guild socialism and such left Marxists as Anton Pannekoek, Rosa Luxemburg, Paul Mattick, and others. Unless those goals are attained, Dewey held, politics will remain “the shadow cast on society by big business, [and] the attenuation of the shadow will not change the substance.” He argued that without industrial democracy, political democratic forms will lack real content, and people will work “not freely and intelligently,” but for pay, a condition that is “illiberal and immoral”—ideals that go back to the Enlightenment and classical liberalism before they were wrecked on the shoals of capitalism, as the anarchosyndicalist thinker Rudolf Rocker put it 70 years ago.

There have been immense efforts to drive these thoughts out of people’s heads—to win what the business world called “the everlasting battle for the minds of men.” On the surface, corporate interests may appear to have succeeded, but one need not dig too deeply to find latent resistance that can be revived. There have been some important efforts. One was undertaken 30 years ago in Youngstown Ohio, where U.S. Steel was about to shut down a major facility at the heart of this steel town. First came substantial protests by the workforce and community, then an effort led by Staughton Lynd to convince the courts that stakeholders should have the highest priority. The effort failed that time, but with enough popular support it could succeed.

It is a propitious time to revive such efforts, though it would be necessary to overcome the effects of the concerted campaign to drive our own history and culture out of our minds. A dramatic illustration of the challenge arose in early February 2009, when President Obama decided to show his solidarity with working people by giving a talk at a factory in Illinois. He chose a Caterpillar plant, over objections of church, peace, and human rights groups that were protesting Caterpillar’s role in providing Israel with the means to devastate the territories it occupies and to destroy the lives of the population. A Caterpillar bulldozer had also been used to kill American volunteer Rachel Corrie, who tried to block the destruction of a home. Apparently forgotten, however, was something else. In the 1980s, following Reagan’s lead with the dismantling of the air traffic controllerss union, Caterpillar managers decided to rescind their labor contract with the United Auto Workers and seriously harm the union by bringing in scabs to break a strike for the first time in generations. The practice was illegal in other industrial countries apart from South Africa at the time; now the United States is in splendid isolation, as far as I know.

Whether Obama purposely chose a corporation that led the way to undermine labor rights I don’t know. More likely, he and his handlers were unaware of the facts.

We must overcome the marginalization and atomization of the public so that they can become ‘participants,’ not mere ‘spectators of action.’

But at the time of Caterpillar’s innovation in labor relations, Obama was a civil rights lawyer in Chicago. He certainly read the Chicago Tribune, which published a careful study of these events. The Tribune reported that the union was “stunned” to find that unemployed workers crossed the picket line with no remorse, while Caterpillar workers found little “moral support” in their community, one of the many where the union had “lifted the standard of living.” Wiping out those memories is another victory for the highly class-conscious American business sector in its relentless campaign to destroy workers’ rights and democracy. The union leadership had refused to understand. It was only in 1978 that UAW President Doug Fraser recognized what was happening and criticized the “leaders of the business community” for having “chosen to wage a one-sided class war in this country—a war against working people, the unemployed, the poor, the minorities, the very young and the very old, and even many in the middle class of our society,” and for having “broken and discarded the fragile, unwritten compact previously existing during a period of growth and progress.” Placing one’s faith in a compact with owners and managers is suicidal. The UAW is discovering that again today, as the state-corporate leadership proceeds to eliminate the hard-fought gains of working people while dismantling the productive core of the American economy.

Investors are now wailing that the unions are being granted “workers’ control” in the restructuring of the auto industry, but they surely know better. The government task force ensured that the workforce will have no shareholder voting rights and will lose benefits and wages, eliminating what was the gold standard for blue-collar workers.

This is only a fragment of what is underway. It highlights the importance of short- and long-term strategies to build—in part resurrect—the foundations of a functioning democratic society. An immediate goal is to pressure Congress to permit organizing rights, the Employee Free Choice Act that was promised but seems to be languishing. One short-term goal is to support the revival of a strong and independent labor movement, which in its heyday was a critical base for advancing democracy and human and civil rights, a primary reason why it has been subject to such unremitting attack in policy and propaganda. A longer-term goal is to win the educational and cultural battle that has been waged with such bitterness in the “one-sided class war” that the UAW president perceived far too late. That means tearing down an enormous edifice of delusions about markets, free trade, and democracy that has been assiduously constructed over many years and to overcome the marginalization and atomization of the public so that they can become “participants,” not mere “spectators of action,” as progressive democratic theoreticians have prescribed.

Of all of the crises that afflict us, the growing democratic deficit may be the most severe. Unless it is reversed, Roy’s forecast may prove accurate. The conversion of democracy to a performance with the public as mere spectators—hardly a distant possibility—might have truly dire consequences.

This article is based on a talk delivered June 12, 2009, at an event sponsored by the Brecht Forum.

Source / Boston Review

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