Age of Greed

From "Counterpunch"

From "Counterpunch" Vol18, no.15 - 20110901-15

The “Jobs” Speech
By Andrew Cockburn

There are plenty of reasons for
presuming that Obama’s “jobs
plan,” as outlined in his speech
last week, will prove as ineffectual as
his previous rhetorical assaults on the
economic depression, the most obvious
reason being the ranks of stony-faced
Republicans staring up at him in the
House chamber. More fundamentally,
however, the president gave no sign that
he understands, let alone is prepared to
address, the fundamental problems facing
the economy.

As is now generally accepted, the
global financial storm that blew up in
2007 and reached full fury the following
year was caused by banks speculating
on real estate property loans so wildly
with borrowed money that they went
bankrupt. Or, at least they should have
gone bankrupt but, with the exception of
Lehman Brothers, Goldman, J.P. Morgan,
Morgan Stanley, Wells Fargo, etc., were
saved by assistance from Washington – a
bailout mostly engineered in deep secrecy
lest citizens discover what was being
done in their name with their money. No
banks were restructured, nor were any
senior managements fired, still less
hauled away in handcuffs.
Thus we live today under the same system
that brought us to disaster four
years ago, with an identical team manning
the controls. The crash of 2007-08
was initiated when the bankers’ efforts
to conceal their losses on mortgage loans
(to poor people, at loan-shark rates) fell
apart. Though government assistance
apparently saved them, their appearance
of financial health was underpinned by
the pretence that billions of loans, still
on their books, were sound, generating
interest and profits. But they were
not. Some $500 billion have been written
off in worthless loans (i.e., those which
generated no income and would never be
repaid). But all indications are that a further
$500 billion lurk on the books in the
form of loans deemed “sound” by banks
and their complaisant accountants, but
which are far from that.

Overall, 11 million families are underwater
on their mortgages, with an average
of $65,000 in negative equity, and
millions of these have simply stopped
making their mortgage payments. But
this sad state of affairs is not reflected
in the banks’ books, where many of the
loans are carried as “current,” as there
was a feasible hope of repayment, because
to write them off would undermine
the banks’ own financial standing
– a policy essentially endorsed by the
Bush/Obama administrations, as exemplified
by Treasury Secretary Timothy
Geithner. Conscious of their real and
precarious situation, the banks hoard
their capital rather than extending credit
to worthy borrowers, who might actually
give someone a job. So, credit and
demand continue to contract, along with
employment.

Obama has advanced some feeble efforts
on behalf of the hapless debt-burdened
homeowner, HAMP, HARP, etc.,
but at no time has he or anyone else in
Washington shown the slightest desire to
grasp the nettle and wind up institutions
like Bank of America or Citibank, jailing
those who committed fraud, write off the
bad debts, institute a wholesale policy of
principal mortgage-loan reduction, and,
thus, relieve the crushing burden of debt
that inevitably stifles his own puny economic
initiatives. CP

Andrew Cockburn was co-producer of
the documentary, American Casino, on
the financial crash.

discussion

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The Plutocrats' Rise The Peoples' Decline

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t.e!

Lyrics | - That’s Entertainment lyrics

Senator Sanders's great speech

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PROSPERITY NOT AUSTERITY with J Stiglitz, D Baker &

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Paul Street's prescription for Electoral & Congressional Reform

"I support (We need) a Democracy Amendment to the U.S. Constitution to fundamentally overhaul American elections in ways that would permit third and fourth parties to become relevant political and policy players. Election reforms required include proportional representation, full public financing (all private money out of public elections), a significantly shortened election season, the end of paid campaign ads, a totally different debate structure, etc."

Buying America

Paul Street's prescription for Electoral & Congressional Reform

To quote Paul Street:

I support a Democracy Amendment to the U.S. Constitution to fundamentally overhaul American elections in ways that would permit third and fourth parties to become relevant political and policy players. Election reforms required include proportional representation, full public financing (all private money out of public elections), a significantly shortened election season, the end of paid campaign ads, a totally different debate structure, etc.

From interview at corrente

Paul Street at zpace

"shaggyct" of Huffpo commenters pool

"shaggyct" writes on the current economy:

Those who are obsessed with government spending can't see the forest for the trees. Government spending didn't get us into the mess we're in. Neither did high taxes, since we have one of the most generous tax regimes in the industrialized world. Not even the property crash is to blame, since we've had those before and survived, although it was the straw that broke the camel's back.

Our problems are far deeper and more systemic than that, and if we are remain competitive in the 21st century, we have to think about our economy in entirely new ways, and rid ourselves of antiquated ideological notions that bear no relevance to a modern, highly competitive globalized economy.

First of all, we are no longer an agrarian society. Conservatives love to romanticize an imagined era of new frontier independence, but home schooling isn't going to get their kids far when they have to compete in the global workplace with an Indian counterpart who has two Masters degrees, speaks three languages, and since he isn't burdened with immense student debt like his American counterpart, he can afford to work for less. The high-paying jobs of the 21st century are knowledge-based, and can increasingly be performed by the best candidate anywhere on the planet.

In the past, we've been able to grow our way out of recession. This is why successive administrations, Republican and Democrat, have decided that deficits don't matter. Foreign investors and central banks have seen things the same way, which is why U.S. debt has generally been viewed as a sound investment regardless of our deficit. But this time, organic growth is not going to save us, especially since we're now a consumer based economy without consumers. And we certainly aren't going to grow our way out of it by slashing public sector spending, although both parties should aspire to reduce inefficient spending.

The overarching problem we have is that America is no longer competitive. Our workers are more expensive than their foreign counterparts and increasingly less qualified. We now rank 27th in the world in the percentage of students graduating with science and technology degrees, and 48th in the quality of mathematics and science education. Given that much of America's economic growth in the past fifty years has been directly attributable to our supremacy in science and technology, that should terrify everybody. Conservatives may like to think that rugged farmers and individualists built this country, but where would America be today had IBM, Microsoft, Google, HP, Lockheed-Martin and Boeing been founded in China rather than here? That scenario is becoming increasingly likely in this century, given that China has now surpassed us as the world's largest high-tech exporter.

While our public debate is consumed with trivia, ideological food-fights and social issues, the Chinese government is making enormous investments in biotechnology, infrastructure, medical research and alternative fuels, providing hundreds of billions of dollars in seed money to spawn the new industries of the 21st century. While we argue about tax cuts, our biggest corporations are making record profits. This allows them to hire more workers and expand, but this time they are doing it overseas. They are reinvesting in nations with superior telecommunication and transportation infrastructure, emerging economies with billions of new middle class consumers and ahighly skilled workers who can afford to work for less and still achieve a high standard of living. That is why we are not seeing any trickle-down effect in this country. Even if trickle-down ever worked in the past, it is an absurd notion in the 21st century.

The third problem we face is a collapse of economic mobility, which is the measure of how many children grow up to exceed their parents' economic standing. Other than the United Kingdom, America now has the lowest level of economic mobility in the industrialized world. It is no coincidence that the nations who rank highest in economic mobility, such as France, Germany, Denmark, Finland and Sweden have the most generous social safety nets, while the United States and United Kingdom have the highest concentration of wealth.

Before anybody screams "Class War", let me explain why wealth concentration is such a threat to capitalism itself, particularly in a consumer economy. It has been demonstrated conclusively that every dollar owned by somebody in the top 1% generates only $0.15 - $0.25 of economic activity (depending on which study you read), while every dollar owned by somebody in the bottom 20% generates $3-$4 of economic stimulus. And here is why. A middle class consumer spends a much larger proportion of their earnings on domestic goods and services. Much of this goes to small domestic businesses, who in turn can afford to hire more workers, grow their businesses and sometimes become the big corporations of the future. Meanwhile, a billionaire spends relatively little of their wealth on domestic goods and services. They may invest it, but typically in large corporations, who as I explained above, are increasingly expanding overseas in any case. That wealth is not trickling down to small businesses that aren't listed on the stock exchange.

In other words, wealth concentration stifles entrepreneurs, cripples small businesses and suffocates economic growth.

Somewhere in the past thirty years, we decided as a nation that we were going to transition from a manufacturing to a consumer based economy. Nearly all of the illusory economic growth since 1980 is the product of middle class consumer spending, which itself has only been made possible due to cheap credit, asset bubbles and consumer debt. But now the middle class has been stretched to breaking point by high cost of living, stratospheric student debt and healthcare premiums and outsourcing. Without a prosperous middle class, we cannot survive as a consumer based economy. And our middle class cannot be prosperous if economic mobility is being stifled by wealth concentration. Who in the middle class can afford to start a business today when they're struggling just to keep afloat?

So what is the answer? As I said at the beginning of this diatribe, we need to think in radical new ways if we are going to adjust to the new paradigm in which we find ourselves, and perhaps learn a lesson or two from those nations that are leaving us eating dust right now.

America is like a Windows operating system. The longer it keeps doing the same thing, the slower it gets, and eventually it will need to be rebooted.

Not everything that involves the private sector is good, and not everything that involves the government is bad. The world is much more complicated than that. But the private sector is not going to bail us out this time, which leaves the government as the only entity with the muscle to get us moving again. We need to invest in education, infrastructure, R&D. We need to encourage and help people to start small businesses. We need to ensure that money is no barrier to students seeking a college education. We need to reform education, and begin by slashing the ridiculously long schoolbreaks that made sense in an 18th century agrarian society, but serve no purpose today. We need to invest in our biggest asset, our people, making sure that they are not at risk of losing their homes if they seek retraining.

Every day, I get accused on this forum by so-called conservatives of being a socialist. But capitalism was designed as a means to promote economic mobility, not as an end in itself. Our obsession with the means rather than the end is actually destroying everything that capitalism was intended to achieve, and that is why by advocating for emergency government investment in our future, I consider myself a bigger capitalist than any of those well-intentioned folks who attend Tea Party rallies and call me a Marxist.

We have a choice this year. A vote for the GOP is a vote for regressive policies that will set us back for decades while the world passes us by. The Democrats may not be perfect, but they certainly understand these big picture concepts far more than the small minded nihilists in the Republican Party whose ideological fervor is the biggest threat that capitalism has ever faced.

END”

Interview with Michael Hirsh by Jonanthan Alter on his new book "Capital Offense"

Amazon.com Review

Michael Hirsh and Jonathan Alter: One-on-One

Jonathan Alter: Your book starts by tracing three decades of Washington history from the Reagan era on. Why is understanding that history so important?

Michael Hirsh: You can’t understand what happened on Wall Street without first understanding what happened in Washington. Things of this magnitude—the worst financial crash and economic downturn since the Great Depression—don’t just occur because of a subprime mortgage bubble and a bunch of crazy traders in New York. It is only comprehensible as story of an entire era, a zeitgeist that defined the post-Cold War period. That’s my story. It began as the Reagan Revolution of 1981, which launched a deregulation movement that unmoored much of the economy from government oversight and antitrust laws, creating the wild age of finance with which we've all grown up. The failure was huge, systemic and bipartisan. The Clinton administration was as much to blame as the second Bush administration. For nearly 25 years, the facts on the ground seemed to bear out the idea that markets may overreach and go up and down, but they are always smarter than governments. The deregulatory '80s were a boom time. The '90s were better. The end of the Cold War turbo-charged the whole process. Free-market absolutism went from being a mocked, maverick ideology—something identified in the '60s and '70s with Barry Goldwater and William F. Buckley—to a kind of national secular religion. It seized control of the national agenda and shifted the axis of the entire economic debate sharply rightward, turning ordinary Republicans into small-government zealots and liberal Democrats into "Eisenhower Republicans" (that's what Bill Clinton mockingly called himself.) It was only because of this environment – this all-conquering ideology-- that Wall Street and its lobby got away with as much as it did. Remember, the instruments that became notorious after the subprime collapse—collaterized debt obligations or CDOs—didn’t come out of nowhere either. They were allowed to flourish and develop, grow ever more complex, for two decades. Despite regular market blowups – LTCM! Enron! – the only change that occurred was even more deregulation. CDOs were only the latest, “improved” version of a model long in the making, the process of turning dubious or bad assets into better-seeming securities while the adults on the playground—the regulators and central bankers--weren’t watching.

Alter: Larry Summers is the president’s chief economic advisor, yet you argue that his performance both before and since the beginning of the Obama administration make him the wrong choice for the job. Why?

Hirsh: Summers is a fascinating figure in this narrative. He is unquestionably one of the greatest economists of his generation, and he did some of the most path-breaking work on the fallacy of rational markets. After the 1987 stock market crash, for example, Summers wrote that it was impossible to believe any longer that prices moved in rational response to fundamentals. He even advocated a tax on financial transactions. Yet Summers later abandoned these positions in favor of Greenspan’s view that markets will take care of themselves. How could such a powerful intellect continue to believe and advocate this view, despite the plentiful accumulating evidence that the “efficient market hypothesis” did not hold up (including his own work)? Mainly because the near-religious attachment to free-market absolutism had become such a ruling principle that no single senior official in Washington dared to contradict—especially if he was politically ambitious. Not surprisingly, as vested as he was in creating the old system, Summers has taken a minimalist approach to changing it in the current administration, and he argued, for example, for a smaller stimulus than others did.

Alter: Why are people like Summers and Geithner—creatures of the old system—in charge while those who were most prescient and accurate, like Born or Stiglitz or Raghu Rajan, standing on the outside of Washington and looking in?

Hirsh: Barack Obama was slow in understanding just how deep and systemic the problem was. That’s one reason why it took him so long to see that Paul Volcker, for example, might have been right in calling for banks to be banned from proprietary trading. “He didn’t run for president to fix derivatives,” said Michael Greenberger, Brooksley Born’s former deputy at the CFTC. “When he brought in Summers, Geithner and Gensler he just thought he was getting the best of the best. I don’t think he understood that within the Democratic Party there was a great split over regulatory philosophy.”

Alter: In your book women are generally the heroines and men are generally the villains. Moreover the women are generally punished for being heroines and the men are generally rewarded for being villains. How can that be?

There’s a lot to this idea, although some of the heroes of my story are also men, such as the economist Joseph Stiglitz and former Treasury Secretary Paul O’Neill. And occasionally a woman, like Wendy Gramm, must take some of the blame for the failed financial system. But it is true that women are often the gutsiest and most prescient figures in this saga. Women like Brooksley Born and Sheila Bair. Wall Street may be the most macho place on the planet. Brooksley Born, the former chairwoman of the Commodity Futures Trading Commission who warned of the dangers of over-the-counter derivatives a decade ago, was seen by her male colleagues in Washington as an interloper—or a “lightweight wacko,” as they called her at the Fed. The free-market fervor of this era was so dominant, and so admired were its male champions like Robert Rubin and Alan Greenspan, that it took a special kind of person to resist it. An individual of rare intellect, integrity and courage. Born was one of those unusual people. The thinking of the times was like a virus, and Born was one of those immune to it, to the idea that financial markets ought to be unregulated. And that had a lot to do with the sexism she had been battling her entire career. Fighting for derivatives regulation was, for her, just another way of breaking down the male monopoly.

Alter: You believe in capitalism and free markets, and yet you argue that many of your characters let the country down by failing to understand where rigorous supervision was necessary. Why didn’t they strike a better balance?

Hirsh: They let their faith in Wall Street betray them. During the free-market era, people forgot that financial markets behave differently than normal markets in goods and services. They are more prone to manias and panics; the ordinary rules of economics don’t apply. Financial markets simply have to be more regulated. In some ways no one is more culpable in this than Robert Rubin. Rubin was a good man. He always had a big heart and a gentle manner: He was a liberal Democrat who, as a young trader at Goldman Sachs, used to show up at New York community meetings on the inner-city poor. Later on he opposed Bill Clinton’s “workfare” reform -- a much-criticized compromise with the GOP -- as too harsh. But he could not bring himself to lay a restraining hand on his former colleagues from Wall Street. Brooksley Born later told me she blamed Rubin more than Greenspan in the end. Because he knew better that markets were imperfect, yet he had neither the vision nor the courage to act. It was Rubin who had inspired his adoring underlings to compile ten principles—which they later presented to him in a frame—they called “the Rubin Doctrine of International Finance,” the first of which was, “the only certainty in life is that nothing is ever certain,” and the second of which was: “Markets are good, but they are not the solution to all problems.” In one of his last acts as Treasury secretary, Rubin presided over a report of the President’s Working Group on Financial Markets that hesitantly proposed, as a “potential additional step,” the “direct regulation of derivatives dealers.” Rubin himself would later insist that he’d always wanted leverage to be reduced too. But Rubin never did anything about these worries. The “potential additional step” was never taken.

Alter: I’m very intrigued by your portrayal of Milton Friedman as the father of the era in many ways. How relevant are the personal histories of these major economic figures in changing the fate of the country?

Hirsh:Extremely relevant. Friedman was the proud son of immigrants who romanticized the struggle of his mother as a young girl in a Lower East Side sweatshop in the late 1890s, when New York was crowded with European Jews. Friedman described it as a great place for an immigrant “to get started” because there was “no red tape.” Friedman himself had started out wanting to be an insurance actuary. He was tiny, bespectacled and balding. He would have looked more at home in an anonymous office cubicle somewhere-- an obscure worker bee in the vast hive of American capitalism-- than on the world stage. But that was just the point of his personal story. It embodied the American Dream that was the mainspring of all his economic thinking. He was the Nobody from Nowhere who on pure merit, left unencumbered by government meddling, becomes Somebody. Alan Greenspan was a nerdy “math junkie,” as he described himself, who was “groping for a frame of reference” until he met the libertarian writer Ayn Rand, as she herself later recalled. He was, in other words, something of an empty vessel, and Rand gave Greenspan his passion for the morality of capitalism. Joe Stiglitz developed an opposite passion—a deep skepticism about markets—while growing up in one of the grittiest industrial cities in America, Gary, Indiana. Observing the poverty and cyclical layoffs in the steel industry as a small boy, he began to ask questions about why markets didn’t work well. It was no accident that Stiglitz became in some ways the John Maynard Keynes of his era (Keynes himself was shaped by his searing experience of the Depression). Like Keynes, who was ignored when he warned after World War I that the draconian peace imposed on Germany would lead to disaster, Stiglitz stood almost alone against the “Washington Consensus” lorded over by Rubin, Greenspan and Summers.

Alter: What does your book tell us about the economy of today? What do we need to do to recover?

Hirsh:We need to go a lot farther than President Obama has. The book explains how Obama missed a golden opportunity to remake Wall Street, the American economy, and the global economy. Obama was seen by many as the second coming of Franklin Delano Roosevelt. After the 2008 election, Time magazine actually Photo shopped Obama’s face onto FDR’s in the famous Depression-era shot of Roosevelt grinning in his car, his cigarette holder tilted jauntily upward. But instead of “the New New Deal,” as Time called it, Obama faithfully channeled Larry Summers and Tim Geithner and their conservative approach to stimulus and reform. The president distracted himself with less pressing issues like health care and nuclear disarmament. He even flew to Oslo to get Chicago picked for the Olympics (he failed). Early on Obama’s Summers and Geithner argued down Christina Romer, the new chairwoman of the Council of Economic Advisors, when her office suggested that the initial fiscal stimulus be as high as $1.2 trillion. They didn’t want to pile onto the deficit, or at least they didn’t want to face the political consequences of such an increase in government spending. With the recession still darkening the outlook, Summers and Geithner also didn’t want to tamper too much with what they still saw as the economy’s engine room, Wall Street. The president “explicitly decided not to break up all big financial institutions,” another top economic advisor, Austan Goolsbee, told me. Heeding the advice of Summers and Geithner, Obama decided that the cause of the crisis “wasn’t primarily about size.” As a result, little faith was restored in the system—an essential ingredient to full recovery. Not enough jobs were created. Now Obama’s economic team is disintegrating and he’s paying for his lack of dramatic action. More and more it looks like Obama will face grim growth and unemployment numbers going into 2012 -- much less the 2010 election. Distracting himself with health care and other issues, Obama may have politically maneuvered himself out of the only major remedy that could bring unemployment down and growth up enough to assure his reelection: another giant fiscal stimulus.

Obama's Labor Day Speech

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