Archive for April, 2012
From Financial Crisis to Stagnation: An Interview with Thomas Palley
Thomas Palley is has served as the chief economist
for the US – China Economic and Security Review Commission. He is
currently Schwartz Economic Growth Fellow at the New America Foundation.
His latest book From Financial Crisis to Stagnation is available at a
20% discount here [Select country location (top right hand corner) & enter code "palley2012" at checkout]
Interview conducted by Philip Pilkington
Philip Pilkington: At the beginning of your book From Financial Crisis to Stagnation you refer to the 2008 crisis as a ‘crisis of bad ideas’. Could you please briefly explain why you refer to the crisis in this way?
Thomas Palley: A central and critical element of my book is its emphasis on the role of economic ideas in generating the crisis. This feature fundamentally distinguishes it from mainstream explanations that tend to represent the crisis in terms of surprise events and economic shocks (e.g. black swans).
My book starts with the fundamental idea that economies are made, not found. The way economies are organized and function is significantly the product of social choices, not the product of nature. Over the past thirty years we (society) have embraced a set of economic ideas that shaped economic arrangements – including the pattern of income distribution, the power of corporations and finance relative to labor, and the way in which the economy generates demand.
This shaping of economic arrangements was obviously driven by political forces acting on behalf of corporate and financial elite interests, but economic ideas also played a critical role. First, the ideas of mainstream economists provided justification for the re-shaping of the economy in ways that elite interests wanted. Second, mainstream economists put forward additional ideas that were picked up and incorporated into the policy project of corporate and financial elites. Third, the monopoly capture of economic discourse by mainstream economics served to exclude other competing economic ideas from making it on to the policy table, into classrooms, and into the public debate.
The implication of this view is the crisis is at a deep level the product of a flawed economic policy paradigm derived from a set of flawed economic ideas. Escaping the crisis means replacing that policy paradigm and the ideas from which it derives. That is a massive challenge involving both a political contest and an intellectual contest. We need to win both. One without the other will be useless. It is no good winning the political contest if you simply replace Tweedledum (hardcore neoliberals) with Tweedledee (softcore neoliberals). Likewise, it is no good winning the intellectual contest if you do not win the political contest to implement different economic policy ideas.
PP: In the book you distinguish between two sorts of alternative approaches to the crisis. One you term ‘Textbook Keynesianism’ and the other you term ‘Structural Keynesianism’. Could you briefly delineate the differences between the two approaches? Also, should it be understood that the two approaches overlap with different schools of economic thought?
TP: Textbook Keynesianism and structural Keynesianism both emphasize the significance of total (aggregate) demand for the determination of economic activity. That is what makes both of them forms of Keynesianism.
However, textbook Keynesianism sees the microeconomic structure of the economy as intrinsically healthy. If demand falls off, all that is needed is for policy to step in and temporarily fill the demand gap until private sector demand revives. That is the logic behind temporary fiscal stimulus and temporary easy monetary policy.
Structural Keynesianism argues that the economy’s underlying income and demand generating process can be structurally flawed. For instance, income distribution can become badly skewed, creating a permanent shortfall of demand. In that case, private sector demand will not revive and the solution is structural remaking of the economy’s income and demand generating process.
Textbook Keynesianism can be identified with neo-Keynesianism (what Joan Robinson less politely called bastard Keynesianism). It identifies the principal macroeconomic problem as price and wage rigidity. This way of thinking gradually morphed into so-called New Keynesianism, which means textbook Keynesianism and New Keynesianism overlap. However, we should be clear that New Keynesianism has little to do with Keynes’ original logic and it is more a theory of market imperfections in the spirit of Arthur Pigou, Keynes’ great rival.
Structural Keynesianism links with the work of Michal Kalecki who joined Keynes’ insights about aggregate demand with Marx’s insights about class conflict and income distribution. That means structural Keynesianism overlaps with Marxist sociological and economic analysis. However, classical Marxism views capitalist economies as destined to crisis because of a falling rate of profit. Structural Keynesianism does not.
PP: In the book you discuss various mainstream theories of the recent collapse. Without going into too much detail perhaps you could say something about the mainstream explanations of the crisis?
TP: In principle there are two alternative competing mainstream explanations of the crisis. The first is the hardcore neoliberal perspective, which can be labelled the “government failure hypothesis”. In the U.S. it is identified with the Republican Party and with the economics departments of Stanford University, the University of Chicago, and the University of Minnesota. The second is the softcore neoliberal perspective, which can be labelled the “market failure hypothesis”. In the U.S it is identified with the Obama administration and half of the Democratic Party. In Europe it is identified with the Third Way. Among economics departments it is identified with those such as Harvard, Yale and Princeton.
The government failure hypothesis maintains the crisis is rooted in the U.S. housing bubble and its bust. That bubble was due to failures of monetary policy and government intervention in the housing market. With regard to monetary policy, the Federal Reserve pushed interest rates too low for too long in the prior recession. With regard to the housing market, government intervention via the Community Reinvestment Act and Fannie Mae and Freddie Mac, drove up house prices and encouraged homeownership beyond peoples’ means. The neoliberal perspective therefore characterizes the crisis as essentially a U.S. based phenomenon.
The market failure hypothesis maintains the crisis is due to inadequate financial regulation. First, regulators allowed excessive risk-taking by banks. Second, regulators allowed perverse incentive pay structures within banks that encouraged management to engage in “loan pushing” rather than “good lending.” Third, regulators pushed both deregulation and self-regulation too far. Together, these failures contributed to financial misallocation, including misallocation of foreign saving provided through the trade deficit. The market failure hypothesis is therefore slightly more global than the government failure hypothesis, but it views the crisis as a purely financial phenomenon.
PP: Your interpretation of the present crisis is a little different, right? Could you explain it briefly please?
TP: Yes, my interpretation is different – very different. I call it the destruction of shared prosperity hypothesis. This view is not represented in mainstream economic discussions because it challenges the fundamental theoretical foundations of mainstream economics which are shared by both hardcore Chicago School (freshwater) and softcore MIT School (saltwater) neoliberal economics.
My argument is that around 1980 the U.S. adopted a fundamentally flawed economic paradigm. From 1945 through to the mid-1970s the U.S. economy was characterized by a “virtuous circle” Keynesian growth model built on full employment and wage growth tied to productivity growth. The political triumph of Ronald Reagan enshrined a new economic paradigm that abandoned full employment and severed the link between wages and productivity growth.
The new paradigm was fundamentally flawed. One flaw was that it relied on debt and asset price inflation to fuel growth instead of wages. A second flaw was the model of globalization which created an economic gash in the form of leakage of spending on imports (the trade deficit), leakage of investment spending offshore, and leakage of manufacturing jobs offshore. These twin flaws created a growing demand gap.
That is where finance enters the picture as its role was to fill the demand gap. Financial deregulation, regulatory forbearance, financial innovation, financial mania, and plain vanilla financial fraud kept the economy going by making ever more credit available, However, as the economy cannibalized itself by undercutting income distribution and accumulating debt, it needed ever larger speculative bubbles to grow. The house price bubble was simply the last and biggest bubble and was effectively the only way around the stagnation that would otherwise have developed in 2001.
The house price bubble delayed the onset of stagnation but at a cost. When it burst it created a financial crisis because of the scale of financial excess. Moreover, it also makes it harder to escape stagnation now because of the scale of debt burdens and the extent of destruction of credit-worthiness.
PP: Your interpretation seems to make a lot more sense than the competing theories, which appear to me reductionist. Why do you think that your colleagues – especially your left-leaning colleagues – are missing the bigger picture?
TP: Thanks, Philip. That is a very good and difficult question. It is key to understanding why the crisis has so far generated little change in economics and economic policy.
There are many mainstream (orthodox) economists who have progressive values but they miss the big picture because their theory cannot accommodate it. Moreover, they can’t abandon their theory for a host of psychological and sociological reasons. At the psychological level it would involve a devastating admission that they have been wrong; that they’ve been teaching their students a lot of nonsense for thirty years. At the sociological level it would mean giving up the trappings of power and pay that go with their current intellectual monopoly because the paymasters of the system would quickly replace them with others.
That said, many mainstream economists are starting to admit income distribution has played a role in fermenting the crisis (you have to be willfully blind not too see it). Consequently, they are busy trying to incorporate income distribution into their narrative. However, they do so in a way that leaves their core theory about markets and market efficiency unchanged. Unfortunately, journalists and the general public cannot see this and are taken in by this tactic. One of the contributions of the book is it unmasks these obfuscations by showing how these stories don’t stack up and are inconsistent with the evidence.
Finally, this discussion shows why it is very important the general public be capable of distinguishing between “values” and “analysis”. If not, people risk being fooled by the rhetoric of progressive values that provides cover for policies that are actually conservative.
PP: In the book you provide a very clear description of what actually occurred in the financial market in 2008. Reading it I thought that a lot of people – myself included – have never really put the pieces together in their own minds. Maybe you could summarise the key events briefly?
TP: The mechanics of the crisis within the U.S. financial system are actually quite simple and can be understood as a six step process. Step one was the build-up of toxic loans over several years. Step two was when loans eventually started turning sour with the bursting of the house price bubble in 2007, causing loan losses. Step three was the destruction of bank equity caused by mounting loan losses. This process began in the so-called “shadow banking system” and then moved into the Wall Street investment banks and the established commercial banking sector. Step four was the resulting threat of bank defaults triggered by equity destruction. Step five was the rush to cash spurred by the threat of default. That caused a liquidation trap as agents tried to sell financial assets to raise cash, which deepened the extent of asset price declines and caused further equity losses. Step six was the run in the commercial paper market immediately after the collapse of Lehman brothers (September 2008) whereby banks and financial institutions became unwilling to lend to each other. That put every bank (including Goldman Sachs) on the verge of default, prompting the Federal Reserve to step in and de facto take over the commercial paper market by acting as lender of last resort.
PP: In the book you mention the commodities bubble that blew up in the 2008 financial crisis a number of times. Many commodities – oil included – are nearly back at their 2008 levels. Do you think that this could be due to speculation? If so, why on earth are the US government allowing this?
TP: I firmly believe speculation is a significant part of the run up in commodity prices, particularly oil. Over the last decade there has been tremendous change in the character of commodity market participants. In the past, the market consisted of producers, end-users, and traders intermediating between these groups. Now, the market has been invaded by financial investors in the form of pension funds, endowment managers, hedge funds acting on behalf of high net worth individuals, investment bank entities trading on their own account, and exchange traded funds (ETFs) for ordinary punters who want to speculate on commodities. This transformation represents the ‘financialization’ of commodity markets and it has resulted in a tsunami of money chasing commodities as a speculative investment vehicle. After causing a bubble and a bust in 2008, it has again pushed up oil prices.
The fingerprints of speculation are all over the oil market: large one day price spikes and plunges that cannot possibly be explained by changes in economic fundamentals; high prices in the face of large and growing inventories; storage in unconventional forms like idle super-tankers; and investment banks like Goldman Sachs purchasing oil storage capacity in places like Cushing, Oklahoma.
Why have the Federal Government and Congress done little about this? Two reasons. First, Wall Street, the banks, and oil companies are big beneficiaries from these developments and they (as everyone knows) are some of the most powerful vested political interests. Money talks in politics and they have the money. Second, economists have been disastrous on this issue, continuously denying the role of speculation. The depth of this denial is evidenced by the fact that even the often critical and insightful Paul Krugman has consistently denied the role of speculation. This provides yet another example of the role of bad economic ideas in the destruction of shared prosperity.
PP: Many economists and politicians seek to blame the Fed for the housing bubble and the financial crisis. In your book you say that this is misleading. Why do you think this?
TP: In my view the Fed is both to blame and not to blame for the crisis.
The Fed is to blame because it strongly supported the over-arching neoliberal economic program that is the ultimate cause of the crisis. Its support for the neoliberal program is most evident in its support for financial deregulation, support for self-regulation, and opposition to regulation of financial innovations such as derivatives. Had the Fed not held these beliefs and done its job properly, the excesses of the sub-prime market and the house price bubble would likely have been significantly prevented. Alan Greenspan was the booster-in-chief but almost every member of the board of governors and the roster of economists working in the Fed deserve blame. They all sung from the same song book and were deaf to other music saying inflation targeting was not enough and needed to be accompanied by tough oversight and balance sheet regulation.
However, the Fed is not to blame for pushing interest rates too low and holding them there too long, which is the charge levelled by neoliberal economists like John Taylor of Stanford University. After the recession of 2001 the economy was stuck in jobless recovery and showed signs of falling back into recession. This was despite significant stimulus provided via the Bush tax cuts and Iraq war. From the point of view of escaping stagnation, the Fed did the right thing.
Unfortunately, most of the public discussion has focused on the Fed’s interest rate policy after the 2001 recession. It should be focused on the neoliberal economic thinking that still permeates the Fed. Though there has been some change in attitude toward regulation, the Fed’s fundamental thinking about the economy remains unchanged. This failure to go after deep failures of understanding is part of the mechanism that protects the policy establishment, and it explains why the people in charge of the Fed (and other central banks like the Bank of England and European Central Bank) are the same people who failed so disastrously before the crisis.
PP: Regarding the economic thinking about the broader causes of the crisis you are particularly critical of the ‘savings glut hypothesis’ that has become popular, especially with the Federal Reserve Chairman Ben Bernanke. My impression from the book is that you see this as ad hoc economic thinking that seeks to avoid the real issues. Would I be right in saying that and could you briefly outline what is wrong with the savings glut hypothesis – which, in my reading, is as pervasive on the left as it is on the right?
TP: In my view the savings glut hypothesis is nonsense economics. Looking at it from the big picture, you see it is just another in a series of explanations of the US trade deficit by mainstream economists. My book shows clearly how these explanations evolve to fit the political moment rather than to explain the phenomenon. And the enduring common feature of all these explanations is they avoid blaming globalization as the cause of the problem or having any downside.
That is absolutely staggering. Mainstream economists blind themselves to the most obvious explanation, and that is a pattern that repeats over and over again in other areas of economics. And because the explanation is so obvious and simple you can never write about it in journals which are fixated on complexity. The story about the emperor’s new clothes really does apply for much of modern economics.
With regard to the saving glut hypothesis, it ignores the fact that the US trade deficit has been rising for 30 years, long before China emerged on the scene. And there is much other evidence and argument against it – but that is in the book.
PP: The book ends on a slightly pessimistic note. It appears that, given the entrenched dominant policy paradigm governments are likely not to begin the process of economic rebalancing. Do you see any light at the end of the tunnel? Are there any social or political forces you think might move the policy debate forward, both in the US and worldwide?
TP: You are right. I am pessimistic which is why the book predicts stagnation. And by the way that prediction was made in 2010 when the book was written, so it has already been proven right. I had great difficulty finding a publisher because 2010 was the time of “green shoots” and “V-shaped” recovery and there was widespread denial about the systemic nature of the crisis. Princeton University Press who published my prior book turned it down.
I am guided by Gramsci’s aphorism regarding pessimism of the intellect and optimism of the will. My intellect tells me that as of now there is no significant political force for progressive change that moves the political and policy debate in the direction I would like to see it go. At best, we are muddling through in a way that contains the economic crisis at its current level. Moreover, if anything, the risks are to the downside from contraction in Europe, risks of trouble in China, slowing growth in emerging market economies, and the prospect of fiscal drag in the US.
In many ways the economic die have been cast. We are now moving into the stage where political risk starts to assume a bigger role. I begin my book with some comparisons with the 1930s and I believe those comparisons remain valid. Mark Twain talked of history rhyming rather than repeating, and today’s rhyme is clearly with the 1930s.
That said I am an optimist of the will. Why else write a book that contains a map for change of economics, politics and economic policy. One has to be an optimist if one believes in constitutional democracy, and I do.
Interview conducted by Philip Pilkington
Philip Pilkington: At the beginning of your book From Financial Crisis to Stagnation you refer to the 2008 crisis as a ‘crisis of bad ideas’. Could you please briefly explain why you refer to the crisis in this way?
Thomas Palley: A central and critical element of my book is its emphasis on the role of economic ideas in generating the crisis. This feature fundamentally distinguishes it from mainstream explanations that tend to represent the crisis in terms of surprise events and economic shocks (e.g. black swans).
My book starts with the fundamental idea that economies are made, not found. The way economies are organized and function is significantly the product of social choices, not the product of nature. Over the past thirty years we (society) have embraced a set of economic ideas that shaped economic arrangements – including the pattern of income distribution, the power of corporations and finance relative to labor, and the way in which the economy generates demand.
This shaping of economic arrangements was obviously driven by political forces acting on behalf of corporate and financial elite interests, but economic ideas also played a critical role. First, the ideas of mainstream economists provided justification for the re-shaping of the economy in ways that elite interests wanted. Second, mainstream economists put forward additional ideas that were picked up and incorporated into the policy project of corporate and financial elites. Third, the monopoly capture of economic discourse by mainstream economics served to exclude other competing economic ideas from making it on to the policy table, into classrooms, and into the public debate.
The implication of this view is the crisis is at a deep level the product of a flawed economic policy paradigm derived from a set of flawed economic ideas. Escaping the crisis means replacing that policy paradigm and the ideas from which it derives. That is a massive challenge involving both a political contest and an intellectual contest. We need to win both. One without the other will be useless. It is no good winning the political contest if you simply replace Tweedledum (hardcore neoliberals) with Tweedledee (softcore neoliberals). Likewise, it is no good winning the intellectual contest if you do not win the political contest to implement different economic policy ideas.
PP: In the book you distinguish between two sorts of alternative approaches to the crisis. One you term ‘Textbook Keynesianism’ and the other you term ‘Structural Keynesianism’. Could you briefly delineate the differences between the two approaches? Also, should it be understood that the two approaches overlap with different schools of economic thought?
TP: Textbook Keynesianism and structural Keynesianism both emphasize the significance of total (aggregate) demand for the determination of economic activity. That is what makes both of them forms of Keynesianism.
However, textbook Keynesianism sees the microeconomic structure of the economy as intrinsically healthy. If demand falls off, all that is needed is for policy to step in and temporarily fill the demand gap until private sector demand revives. That is the logic behind temporary fiscal stimulus and temporary easy monetary policy.
Structural Keynesianism argues that the economy’s underlying income and demand generating process can be structurally flawed. For instance, income distribution can become badly skewed, creating a permanent shortfall of demand. In that case, private sector demand will not revive and the solution is structural remaking of the economy’s income and demand generating process.
Textbook Keynesianism can be identified with neo-Keynesianism (what Joan Robinson less politely called bastard Keynesianism). It identifies the principal macroeconomic problem as price and wage rigidity. This way of thinking gradually morphed into so-called New Keynesianism, which means textbook Keynesianism and New Keynesianism overlap. However, we should be clear that New Keynesianism has little to do with Keynes’ original logic and it is more a theory of market imperfections in the spirit of Arthur Pigou, Keynes’ great rival.
Structural Keynesianism links with the work of Michal Kalecki who joined Keynes’ insights about aggregate demand with Marx’s insights about class conflict and income distribution. That means structural Keynesianism overlaps with Marxist sociological and economic analysis. However, classical Marxism views capitalist economies as destined to crisis because of a falling rate of profit. Structural Keynesianism does not.
PP: In the book you discuss various mainstream theories of the recent collapse. Without going into too much detail perhaps you could say something about the mainstream explanations of the crisis?
TP: In principle there are two alternative competing mainstream explanations of the crisis. The first is the hardcore neoliberal perspective, which can be labelled the “government failure hypothesis”. In the U.S. it is identified with the Republican Party and with the economics departments of Stanford University, the University of Chicago, and the University of Minnesota. The second is the softcore neoliberal perspective, which can be labelled the “market failure hypothesis”. In the U.S it is identified with the Obama administration and half of the Democratic Party. In Europe it is identified with the Third Way. Among economics departments it is identified with those such as Harvard, Yale and Princeton.
The government failure hypothesis maintains the crisis is rooted in the U.S. housing bubble and its bust. That bubble was due to failures of monetary policy and government intervention in the housing market. With regard to monetary policy, the Federal Reserve pushed interest rates too low for too long in the prior recession. With regard to the housing market, government intervention via the Community Reinvestment Act and Fannie Mae and Freddie Mac, drove up house prices and encouraged homeownership beyond peoples’ means. The neoliberal perspective therefore characterizes the crisis as essentially a U.S. based phenomenon.
The market failure hypothesis maintains the crisis is due to inadequate financial regulation. First, regulators allowed excessive risk-taking by banks. Second, regulators allowed perverse incentive pay structures within banks that encouraged management to engage in “loan pushing” rather than “good lending.” Third, regulators pushed both deregulation and self-regulation too far. Together, these failures contributed to financial misallocation, including misallocation of foreign saving provided through the trade deficit. The market failure hypothesis is therefore slightly more global than the government failure hypothesis, but it views the crisis as a purely financial phenomenon.
PP: Your interpretation of the present crisis is a little different, right? Could you explain it briefly please?
TP: Yes, my interpretation is different – very different. I call it the destruction of shared prosperity hypothesis. This view is not represented in mainstream economic discussions because it challenges the fundamental theoretical foundations of mainstream economics which are shared by both hardcore Chicago School (freshwater) and softcore MIT School (saltwater) neoliberal economics.
My argument is that around 1980 the U.S. adopted a fundamentally flawed economic paradigm. From 1945 through to the mid-1970s the U.S. economy was characterized by a “virtuous circle” Keynesian growth model built on full employment and wage growth tied to productivity growth. The political triumph of Ronald Reagan enshrined a new economic paradigm that abandoned full employment and severed the link between wages and productivity growth.
The new paradigm was fundamentally flawed. One flaw was that it relied on debt and asset price inflation to fuel growth instead of wages. A second flaw was the model of globalization which created an economic gash in the form of leakage of spending on imports (the trade deficit), leakage of investment spending offshore, and leakage of manufacturing jobs offshore. These twin flaws created a growing demand gap.
That is where finance enters the picture as its role was to fill the demand gap. Financial deregulation, regulatory forbearance, financial innovation, financial mania, and plain vanilla financial fraud kept the economy going by making ever more credit available, However, as the economy cannibalized itself by undercutting income distribution and accumulating debt, it needed ever larger speculative bubbles to grow. The house price bubble was simply the last and biggest bubble and was effectively the only way around the stagnation that would otherwise have developed in 2001.
The house price bubble delayed the onset of stagnation but at a cost. When it burst it created a financial crisis because of the scale of financial excess. Moreover, it also makes it harder to escape stagnation now because of the scale of debt burdens and the extent of destruction of credit-worthiness.
PP: Your interpretation seems to make a lot more sense than the competing theories, which appear to me reductionist. Why do you think that your colleagues – especially your left-leaning colleagues – are missing the bigger picture?
TP: Thanks, Philip. That is a very good and difficult question. It is key to understanding why the crisis has so far generated little change in economics and economic policy.
There are many mainstream (orthodox) economists who have progressive values but they miss the big picture because their theory cannot accommodate it. Moreover, they can’t abandon their theory for a host of psychological and sociological reasons. At the psychological level it would involve a devastating admission that they have been wrong; that they’ve been teaching their students a lot of nonsense for thirty years. At the sociological level it would mean giving up the trappings of power and pay that go with their current intellectual monopoly because the paymasters of the system would quickly replace them with others.
That said, many mainstream economists are starting to admit income distribution has played a role in fermenting the crisis (you have to be willfully blind not too see it). Consequently, they are busy trying to incorporate income distribution into their narrative. However, they do so in a way that leaves their core theory about markets and market efficiency unchanged. Unfortunately, journalists and the general public cannot see this and are taken in by this tactic. One of the contributions of the book is it unmasks these obfuscations by showing how these stories don’t stack up and are inconsistent with the evidence.
Finally, this discussion shows why it is very important the general public be capable of distinguishing between “values” and “analysis”. If not, people risk being fooled by the rhetoric of progressive values that provides cover for policies that are actually conservative.
PP: In the book you provide a very clear description of what actually occurred in the financial market in 2008. Reading it I thought that a lot of people – myself included – have never really put the pieces together in their own minds. Maybe you could summarise the key events briefly?
TP: The mechanics of the crisis within the U.S. financial system are actually quite simple and can be understood as a six step process. Step one was the build-up of toxic loans over several years. Step two was when loans eventually started turning sour with the bursting of the house price bubble in 2007, causing loan losses. Step three was the destruction of bank equity caused by mounting loan losses. This process began in the so-called “shadow banking system” and then moved into the Wall Street investment banks and the established commercial banking sector. Step four was the resulting threat of bank defaults triggered by equity destruction. Step five was the rush to cash spurred by the threat of default. That caused a liquidation trap as agents tried to sell financial assets to raise cash, which deepened the extent of asset price declines and caused further equity losses. Step six was the run in the commercial paper market immediately after the collapse of Lehman brothers (September 2008) whereby banks and financial institutions became unwilling to lend to each other. That put every bank (including Goldman Sachs) on the verge of default, prompting the Federal Reserve to step in and de facto take over the commercial paper market by acting as lender of last resort.
PP: In the book you mention the commodities bubble that blew up in the 2008 financial crisis a number of times. Many commodities – oil included – are nearly back at their 2008 levels. Do you think that this could be due to speculation? If so, why on earth are the US government allowing this?
TP: I firmly believe speculation is a significant part of the run up in commodity prices, particularly oil. Over the last decade there has been tremendous change in the character of commodity market participants. In the past, the market consisted of producers, end-users, and traders intermediating between these groups. Now, the market has been invaded by financial investors in the form of pension funds, endowment managers, hedge funds acting on behalf of high net worth individuals, investment bank entities trading on their own account, and exchange traded funds (ETFs) for ordinary punters who want to speculate on commodities. This transformation represents the ‘financialization’ of commodity markets and it has resulted in a tsunami of money chasing commodities as a speculative investment vehicle. After causing a bubble and a bust in 2008, it has again pushed up oil prices.
The fingerprints of speculation are all over the oil market: large one day price spikes and plunges that cannot possibly be explained by changes in economic fundamentals; high prices in the face of large and growing inventories; storage in unconventional forms like idle super-tankers; and investment banks like Goldman Sachs purchasing oil storage capacity in places like Cushing, Oklahoma.
Why have the Federal Government and Congress done little about this? Two reasons. First, Wall Street, the banks, and oil companies are big beneficiaries from these developments and they (as everyone knows) are some of the most powerful vested political interests. Money talks in politics and they have the money. Second, economists have been disastrous on this issue, continuously denying the role of speculation. The depth of this denial is evidenced by the fact that even the often critical and insightful Paul Krugman has consistently denied the role of speculation. This provides yet another example of the role of bad economic ideas in the destruction of shared prosperity.
PP: Many economists and politicians seek to blame the Fed for the housing bubble and the financial crisis. In your book you say that this is misleading. Why do you think this?
TP: In my view the Fed is both to blame and not to blame for the crisis.
The Fed is to blame because it strongly supported the over-arching neoliberal economic program that is the ultimate cause of the crisis. Its support for the neoliberal program is most evident in its support for financial deregulation, support for self-regulation, and opposition to regulation of financial innovations such as derivatives. Had the Fed not held these beliefs and done its job properly, the excesses of the sub-prime market and the house price bubble would likely have been significantly prevented. Alan Greenspan was the booster-in-chief but almost every member of the board of governors and the roster of economists working in the Fed deserve blame. They all sung from the same song book and were deaf to other music saying inflation targeting was not enough and needed to be accompanied by tough oversight and balance sheet regulation.
However, the Fed is not to blame for pushing interest rates too low and holding them there too long, which is the charge levelled by neoliberal economists like John Taylor of Stanford University. After the recession of 2001 the economy was stuck in jobless recovery and showed signs of falling back into recession. This was despite significant stimulus provided via the Bush tax cuts and Iraq war. From the point of view of escaping stagnation, the Fed did the right thing.
Unfortunately, most of the public discussion has focused on the Fed’s interest rate policy after the 2001 recession. It should be focused on the neoliberal economic thinking that still permeates the Fed. Though there has been some change in attitude toward regulation, the Fed’s fundamental thinking about the economy remains unchanged. This failure to go after deep failures of understanding is part of the mechanism that protects the policy establishment, and it explains why the people in charge of the Fed (and other central banks like the Bank of England and European Central Bank) are the same people who failed so disastrously before the crisis.
PP: Regarding the economic thinking about the broader causes of the crisis you are particularly critical of the ‘savings glut hypothesis’ that has become popular, especially with the Federal Reserve Chairman Ben Bernanke. My impression from the book is that you see this as ad hoc economic thinking that seeks to avoid the real issues. Would I be right in saying that and could you briefly outline what is wrong with the savings glut hypothesis – which, in my reading, is as pervasive on the left as it is on the right?
TP: In my view the savings glut hypothesis is nonsense economics. Looking at it from the big picture, you see it is just another in a series of explanations of the US trade deficit by mainstream economists. My book shows clearly how these explanations evolve to fit the political moment rather than to explain the phenomenon. And the enduring common feature of all these explanations is they avoid blaming globalization as the cause of the problem or having any downside.
That is absolutely staggering. Mainstream economists blind themselves to the most obvious explanation, and that is a pattern that repeats over and over again in other areas of economics. And because the explanation is so obvious and simple you can never write about it in journals which are fixated on complexity. The story about the emperor’s new clothes really does apply for much of modern economics.
With regard to the saving glut hypothesis, it ignores the fact that the US trade deficit has been rising for 30 years, long before China emerged on the scene. And there is much other evidence and argument against it – but that is in the book.
PP: The book ends on a slightly pessimistic note. It appears that, given the entrenched dominant policy paradigm governments are likely not to begin the process of economic rebalancing. Do you see any light at the end of the tunnel? Are there any social or political forces you think might move the policy debate forward, both in the US and worldwide?
TP: You are right. I am pessimistic which is why the book predicts stagnation. And by the way that prediction was made in 2010 when the book was written, so it has already been proven right. I had great difficulty finding a publisher because 2010 was the time of “green shoots” and “V-shaped” recovery and there was widespread denial about the systemic nature of the crisis. Princeton University Press who published my prior book turned it down.
I am guided by Gramsci’s aphorism regarding pessimism of the intellect and optimism of the will. My intellect tells me that as of now there is no significant political force for progressive change that moves the political and policy debate in the direction I would like to see it go. At best, we are muddling through in a way that contains the economic crisis at its current level. Moreover, if anything, the risks are to the downside from contraction in Europe, risks of trouble in China, slowing growth in emerging market economies, and the prospect of fiscal drag in the US.
In many ways the economic die have been cast. We are now moving into the stage where political risk starts to assume a bigger role. I begin my book with some comparisons with the 1930s and I believe those comparisons remain valid. Mark Twain talked of history rhyming rather than repeating, and today’s rhyme is clearly with the 1930s.
That said I am an optimist of the will. Why else write a book that contains a map for change of economics, politics and economic policy. One has to be an optimist if one believes in constitutional democracy, and I do.
Guest Post: Giant Banks Now 30% Bigger than When Dodd-Frank Financial “Reform” Law Was Passed
By Washington’s Blog
Size of Banks Killing Economy … But Giant Banks Have Only Gotten Bigger Since Financial “Reform” Enacted
For years, many high-level economists and financial experts have said that – unless we break up the giant banks – our economy will never recover, real reform will be blocked, and democracy and the rule of law will be corrupted.So how did the government respond to the financial crisis which started in 2007?
Let the giant banks get even bigger.
As Bloomberg notes, the five banks that held assets equal to 43% of the US economy in 2007 before the financial crisis and the bank bailout now control assets that equal 56% of the US economy:
Two years after President Barack Obama vowed to eliminate the danger of financial institutions becoming “too big to fail,” the nation’s largest banks are bigger than they were before the credit crisis.Some presidents of regional Federal Reserve banks have lambasted too big to fail. As Bloomberg notes:
Five banks – JPMorgan Chase & Co. (JPM), Bank of America Corp., Citigroup Inc., Wells Fargo & Co., and Goldman Sachs Group Inc. — held $8.5 trillion in assets at the end of 2011, equal to 56 percent of the U.S. economy, according to the Federal Reserve.
Five years earlier, before the financial crisis, the largest banks’ assets amounted to 43 percent of U.S. output. The Big Five today are about twice as large as they were a decade ago relative to the economy, sparking concern that trouble at a major bank would rock the financial system and force the government to step in as it did during the 2008 crunch.
“Market participants believe that nothing has changed, that too-big-to-fail is fully intact,” said Gary Stern, former president of the Federal Reserve Bank of Minneapolis.
That specter is eroding faith in Obama’s pledge that taxpayer-funded bailouts are a thing of the past. It is also exposing him to criticism from Federal Reserve officials, Republicans and Occupy Wall Street supporters, who see the concentration of bank power as a threat to economic stability.
***
The industry’s evolution defies the president’s January 2010 call to “prevent the further consolidation of our financial system.” Embracing new limits on banks’ trading operations, Obama said then that taxpayers wouldn’t be well “served by a financial system that comprises just a few massive firms.”
Simon Johnson, a former chief economist of the International Monetary Fund, blames a “lack of leadership at Treasury and the White House” for the failure to fulfill that promise. “It’d be safer to break them up,” he said.
***
Regulatory burden could promote further industry consolidation, according to Wilbur Ross, chairman of WL Ross & Co., a private-equity firm.
“We think the little tiny banks, the 90-odd percent of banks that are under $1.5 billion in deposits, are pretty much an obsolete phenomenon,” he told Bloomberg Television on March 14. “We think they’ll all have to merge with each other, be acquired by bigger banks or something.”
***
In 2011, funding costs for banks with more than $10 billion in assets were about one-third less than for the smallest banks, according to the FDIC.
In recent weeks, at least four current Fed presidents — Esther George of Kansas City, Charles Plosser of Philadelphia, Jeffrey Lacker of Richmond and Richard Fisher of Dallas — have voiced similar worries about the risk of a renewed crisis.But the most powerful Fed bank – the New York Fed – and Bernanke’s Federal Open Market Committee, as well as Tim Geithner’s Treasury Department, have done everything possible to ensure that the the giant banks become too bigger to fail.
The 2012 Election and the Inequality Narrative
One of the least-recognized and most common electoral strategies
by the Republican Party is to run elections around left-wing themes.
For instance, in 2010, much of the ad spending by outside GOP-aligned
groups, as well as explicit party communications, focused on health
care. The Republican attack ads didn’t center for the most part on the
mandate, or anything like that, but on cuts to Medicare. The GOP
recognized that voters, especially senior voters, like Medicare. More
importantly, voters understand Medicare, so when the Democrats
slashed excessive subsidies to private versions of Medicare to bring
them in line with the public sector version, the Republicans had an
attack line that worked. It’s pure populism.
And populism usually does work, at least for elections. Elites often on both sides try to run away from voters; in general party elites don’t like their voters, and those elites, who nest in a densely networked set of PR firms, lobbying firms, government agencies, unions, and corporations, are backed by highly capitalized interest groups. But when the election comes around, they get back to whatever kind of populist narrative they can salvage. Take this current President – he didn’t just run on Hope and Change, but on economic fairness. In fact, I was combing through the Audacity of Hope, and I noticed that Obama actually used the 99%/1% Occupy Wall Street-style rhetoric in 2006. (Note that messaging never really changes – the full title of his book was “The Audacity of Hope: Thoughts on Reclaiming the American Dream”, and this year, one key Democratic surrogate is Van Jones, who just authored a best-selling election-year release timed book titled ”Rebuild the Dream”.)
Here’s Obama, in 2006, on elections and inequality:
It’ll be interesting to see how this theme plays out in the election. With the Buffett Rule, it’s clear that the Obama campaign will make it a centerpiece. Yet, I’ve noted that liberals are having a really tough time electorally these days, from Eric Schneiderman’s unpopular polling numbers to savage defeats in primaries among liberal votes. Even though it’s a really good time to be running on inequality, the rhetoric from both parties is remarkably empty, and voters seem to know it. The Republicans are good at taking such moments, and cynically putting forward arguments about why their opponents cannot be trusted on an issue they themselves are going to make worse. They often point to empty rhetoric, or policy failures, as evidence. And in this case, it’s just not hard to make a case for significant policy failure or empty rhetoric. So far, I haven’t seen the GOP take advantage of this, except for one inaccurate ad by a 501c(4) group. We’ll see what happens now that Romney is consolidating the party behind him.
And populism usually does work, at least for elections. Elites often on both sides try to run away from voters; in general party elites don’t like their voters, and those elites, who nest in a densely networked set of PR firms, lobbying firms, government agencies, unions, and corporations, are backed by highly capitalized interest groups. But when the election comes around, they get back to whatever kind of populist narrative they can salvage. Take this current President – he didn’t just run on Hope and Change, but on economic fairness. In fact, I was combing through the Audacity of Hope, and I noticed that Obama actually used the 99%/1% Occupy Wall Street-style rhetoric in 2006. (Note that messaging never really changes – the full title of his book was “The Audacity of Hope: Thoughts on Reclaiming the American Dream”, and this year, one key Democratic surrogate is Van Jones, who just authored a best-selling election-year release timed book titled ”Rebuild the Dream”.)
Here’s Obama, in 2006, on elections and inequality:
Increasingly I found myself spending time with people of means—law firm partners and investment bankers, hedge fund managers and venture capitalists. As a rule, they were smart, interesting people, knowledgeable about public policy, liberal in their politics, expecting nothing more than a hearing of their opinions in exchange for their checks. But they reflected, almost uniformly, the perspectives of their class: the top 1 percent or so of the income scale that can afford to write a $2,000 check to a political candidate…In 2008, left-wing populism worked for Barack Obama and the Democrats. In 2010, with the Medicare attack line, left-wing populism worked for the Republicans. The irony is that the Republicans attacked the Democrats successfully by portraying an expansion of the health insurance system as a cut to that health insurance system. This was not as dishonest an attack as it seems on first blush – the Democrats really did reduce funding for private versions of Medicare, and most of the expanded coverage theoretically kicked in as of 2014. So even though voters might (emphasis *might*) like what they would eventually get, they didn’t get it in time for the election. I’m curious as to whether the GOP will do the same with inequality, especially considering Mitt Romney’s obvious personal vulnerability on the question. I’m starting to see a few people in DC notice that the Obama administration’s policies, despite some vaguely populist sounding moves like the recently defeated Buffett Rule, are not obviously different than George W. Bush’s in terms of their economic outcome. His policies in terms of their impact may even be worse. Here’s Michael Hirsh, with National Journal.
Still, I know that as a consequence of my fund-raising I became more like the wealthy donors I met, in the very particular sense that I spent more and more of my time above the fray, outside the world of immediate hunger, disappointment, fear, irrationality, and frequent hardship of the other 99 percent of the population—that is, the people that I’d entered public life to serve.
Despite Barack Obama’s populist rhetoric about restoring the middle class, imposing a gimmicky “Buffett Rule” against millionaires and such, the wealthiest one percent in the country have actually made out better, in percentage terms, during Obama’s “recovery” of 2009-2010 than they did from 2002-07 under George W. Bush.Republican Washington Post blogger Jennifer Rubin noted this as well. She quotes the New York Times, mixing in stats on inequality with a set of standard conservative policy ideas.
“The number of New Yorkers classified as poor in 2010 increased by nearly 100,000 from the year before, raising the poverty rate by 1.3 percentage points to 21 percent — the highest level and the largest year-to-year increase since the city adopted a more detailed definition of poverty in 2005.”..I don’t know if this line of argument will be successful. The Republicans aren’t particularly good at running on inequality, though there was a flare-up in the Republican nomination fight between Gingrich and Romney. Their funders hate it, it just doesn’t work naturally with their party infrastructure because their surrogates believe in political and economic inequality as a virtue. But they are also naturally populist in terms of disliking liberal elitism.
The main culprit is the sluggish economy, the Obama economy if you will: “The recession and the sluggish recovery have taken a particularly harsh toll on children, with more than one in four under 18 living in poverty, according to an analysis by the city’s Center for Economic Opportunity that will be released on Tuesday.” The city reported that without federal and state aid, the poverty situation would have been worse. (The report indicates that New York City and the feds use different methods of calculating poverty.)…
The Buffett rule is for left-leaning elites who think voters are dolts and easily baited into becoming envious of others. It is for the economically illiterate who imagine that by taking more money from a tiny sliver of the population that already contributes a huge portion of the country’s taxes we will do. . . well do what, exactly? Not anything to address the debt. Not create jobs that might lift up middle class and poverty-stricken Americans. Not promote school choice or any other effective anti-poverty effort.
In fact, the poverty rate – the worst kind of income inequality – has increased under this president. Last fall figures showed we went from a poverty rate of 14.3 to 15.1 percent. The president, however, continues to burden employers with new taxes and regulations, increase the cost of labor for job creators (with Obamacare, for example), oppose school choice, and refuse to entertain a Republican plan to make Medicare more progressive. There’s a pretty good argument that the best thing America could do for income inequality would be to get a new president and a new set of policies.
It’ll be interesting to see how this theme plays out in the election. With the Buffett Rule, it’s clear that the Obama campaign will make it a centerpiece. Yet, I’ve noted that liberals are having a really tough time electorally these days, from Eric Schneiderman’s unpopular polling numbers to savage defeats in primaries among liberal votes. Even though it’s a really good time to be running on inequality, the rhetoric from both parties is remarkably empty, and voters seem to know it. The Republicans are good at taking such moments, and cynically putting forward arguments about why their opponents cannot be trusted on an issue they themselves are going to make worse. They often point to empty rhetoric, or policy failures, as evidence. And in this case, it’s just not hard to make a case for significant policy failure or empty rhetoric. So far, I haven’t seen the GOP take advantage of this, except for one inaccurate ad by a 501c(4) group. We’ll see what happens now that Romney is consolidating the party behind him.
Corruption Is Why You Can’t Do Your Taxes in Five Minutes
Happy tax day! Cross-posted from Republic Report.
Here’s a chart of Intuit’s lobbying expenditures in Congress, courtesy of Open Secrets. I suspect that some of that nine million dollars of lobbying by that company since 2008 has gone to making it more annoying for you and me to file our taxes.
Here’s what I mean.
In some countries, the equivalent of their IRS sends citizens a form listing what they owe. In California, the state has a program called ReadyReturn that lets you do this for California state taxes. You sign it and send it back, and it takes a few minutes. But for most of us, this isn’t how it works. We gather our tax forms and various banking information, and spend the weekend facing a difficult bureaucratic set of forms, hoping we did it all correctly. Or we use a costly tax filing service or software.
Candidate Barack Obama promised to end this nightmare. He said he would “dramatically simplify tax filings so that millions of Americans will be able to do their taxes in less than five minutes.” The IRS would use information it “already gets from banks and employers to give taxpayers the option of pre-filled tax forms to verify, sign and return.” Experts, he said, estimated this would save 200 million total hours or work and $2 billion.
You can file this under yet another broken campaign promise. And why? Who doesn’t like an idea that is so simple and convenient and just generally helpful? Well, the large software makers, for one. Intuit in fact lobbied incredibly hard to kill the California program Ready Return (complete with attacks from right-wing tax groups). Intuit wasn’t completely successful, but under their pressure, California budgeted only $10,000 to get the word out to residents about the program.
And the risk to Intuit is real – here’s what Intuit said in its investor report, describing risks to its business model.
I’ve been emailing back and forth with White House liaison Jesse Lee over the past few days about this. I’ve asked why the administration has not implemented its campaign promise on pre-filed returns, and I included the information about the Free File Alliance. The agreement with the Free File Alliance does not in fact preclude the IRS from implementing a pre-filing program, so it’s possible this is in the works. Jesse Lee replied, “checking on this’” I’ve sent two follow-up emails, and I’ll let you know what else he says.
Here’s a chart of Intuit’s lobbying expenditures in Congress, courtesy of Open Secrets. I suspect that some of that nine million dollars of lobbying by that company since 2008 has gone to making it more annoying for you and me to file our taxes.
Here’s what I mean.
In some countries, the equivalent of their IRS sends citizens a form listing what they owe. In California, the state has a program called ReadyReturn that lets you do this for California state taxes. You sign it and send it back, and it takes a few minutes. But for most of us, this isn’t how it works. We gather our tax forms and various banking information, and spend the weekend facing a difficult bureaucratic set of forms, hoping we did it all correctly. Or we use a costly tax filing service or software.
Candidate Barack Obama promised to end this nightmare. He said he would “dramatically simplify tax filings so that millions of Americans will be able to do their taxes in less than five minutes.” The IRS would use information it “already gets from banks and employers to give taxpayers the option of pre-filled tax forms to verify, sign and return.” Experts, he said, estimated this would save 200 million total hours or work and $2 billion.
You can file this under yet another broken campaign promise. And why? Who doesn’t like an idea that is so simple and convenient and just generally helpful? Well, the large software makers, for one. Intuit in fact lobbied incredibly hard to kill the California program Ready Return (complete with attacks from right-wing tax groups). Intuit wasn’t completely successful, but under their pressure, California budgeted only $10,000 to get the word out to residents about the program.
And the risk to Intuit is real – here’s what Intuit said in its investor report, describing risks to its business model.
“Our consumer tax business also faces significant competition from the public sector, where we face the risk of federal and state taxing authorities developing software or other systems to facilitate tax return preparation and electronic filing at no charge to taxpayers. These or similar programs may be introduced or expanded in the future, which may cause us to lose customers and revenue. For example, during tax season 2010, the federal government introduced a prepaid debit card program to facilitate the refund process. Our consumer and professional tax businesses provide this service as well.In other words, Intuit will lose a lot of money if the government makes it easier to file your taxes. So how did Intuit manage to prevent the implementation of Obama’s campaign promise? Here’s what Intuit had to say about its strategy.
Although the Free File Alliance has kept the federal government from being a direct competitor to Intuit’s tax offerings, it has fostered additional online competition and may cause us to lose significant revenue opportunities. The current agreement with the Free File Alliance is scheduled to expire in October 2014. We anticipate that governmental encroachment at both the federal and state levels may present a continued competitive threat to our business for the foreseeable future.”What is the Free File Alliance? It’s a coalition of 14 software makers that have signed an agreement with the IRS to provide tax preparation software to the public. You see, the IRS was mandated to provide free online tax prep services to the public, so it outsourced this to existing commercial tax preparers. This agreement was first signed with the Bush administration IRS in 2002, renewed in 2005, and then renewed again under the Obama administration in November, 2009. Even today, despite the Obama campaign promise and demonstrated success around the world, the Free File Alliance indicates on its web page that “Treasury has indicated it does not want the IRS to enter into the tax software business.” And Intuit said on its investor report that this alliance “has kept the federal government from being a direct competitor to Intuit’s tax offerings.”
I’ve been emailing back and forth with White House liaison Jesse Lee over the past few days about this. I’ve asked why the administration has not implemented its campaign promise on pre-filed returns, and I included the information about the Free File Alliance. The agreement with the Free File Alliance does not in fact preclude the IRS from implementing a pre-filing program, so it’s possible this is in the works. Jesse Lee replied, “checking on this’” I’ve sent two follow-up emails, and I’ll let you know what else he says.
Unknown or Disliked: Eric Schneiderman At Negative Approval Rating in New York
About a month ago, I met an extremely liberal and political
couple from upstate New York. I asked the wife whether she likes New
York Attorney General Eric Schneiderman, expecting to hear something
along the lines of “Yeah he’s great” or something like that, the way
that traditional partisans act. I had spent a bit of time at New York
City Democratic events, and most people there respect Schneiderman
because of his work getting that task force on financial fraud
announced. I thought I’d hear something similar. Instead she said, “Oh
is he the guy who is sending my husband scary letters about his
nonprofit?”
Schneiderman it turns out is involved in a jurisdictional dispute with Governor Andrew Cuomo over law enforcement around nonprofits, and is sending out what were probably innocuous but scary sounding letters to people with small nonprofits about governance. This couple was scared by that letter. And that’s all they know of Schneiderman.
Eric Schneiderman has a few more years before he’s up for reelection, this is poll from March isn’t that big a deal. But for a blue state Attorney General in a blue state, this is not good news.
Polling isn’t always a meaningful way to think about how a political official is doing, and this polling shows not that New Yorkers are deeply happy or deeply angry with Schneiderman, but that they just don’t know who he is and that because of that he hasn’t met expectations.
This is a dramatic contrast to the last two AGs – Spitzer, who redefined the office with energy and brilliance, and Cuomo, who used it effectively as a stepping stone to the Governor’s mansion with savvy PR that masked his cover-up of Wall Street criminality. Those two were more prepared for this office than Schneiderman, so perhaps he’ll learn. We’ll see.
Schneiderman’s main effort in office has been the mortgage settlement negotiation. While he’s done some reasonable things on that front, such as his intervention in the Bank of America/Bank of New York settlement, by and large his position at the State of the Union and the financial fraud task force has not panned out. The tip-off that the financial fraud task force wasn’t going well was that the extremely knowledgeable Congressman Brad Miller was passed over for the coordinating job. Now it turns out that the task force, after three months, has accomplished the grand feat of posting that job public.
The basic calculation behind the deal was that relationships with the White House were valuable, he could get more resources to go after big banks, and that liberal organizing groups would rejoice. By one calculation, that seemed like a sweet spot, especially considering the need to support Obama’s reelection in 2012.. Politically, the support of those liberal groups didn’t really help – there was no penetration of the broad mass of the public, as the polling shows.
The legal strategy hasn’t really worked out. Schneiderman has been in office for more than a year. There have been no handcuffs or indictments on anyone involved in the financial crisis or the foreclosure crisis. An attorney general that doesn’t indict or prosecute isn’t worth paying attention to – and so voters aren’t. Of course, this is just his first year. He can turn it around. Bill Clinton, after a disastrous initial Presidency, fired a lot of his staff in the White House and brought in a more seasoned, professional team that righted the ship.
The New York Attorney General office is one of the most powerful offices in the entire country. Schneiderman is acting like legislator, but the job is more like a cop. The clients of the New York AG are the people of New York, not Moveon, not Barack Obama, and not Shaun Donovan. Schneiderman’s first year in office is over, and he has in fact not used power aggressively or creatively.
Is this the kind of Attorney General he will be for the rest of his term? Is his political team up to the task of building power in a state where Cuomo is ready to knife him at any point? Are they able to generate the kind of public posture necessary to wage the high profile attacks on financial villains? Is this legal team adequate? In April of 2011, Schneiderman’s office issued subpoenas of the Baum law firm, the foreclosure mill later revealed as having employees dress up as homeless people for Halloween. The US Attorney Preet Bharara cut a deal with this same firm, a fine with no admission of wrongdoing. Schneiderman’s office recently concluded its actions… with a fine and no admission of wrongdoing.
What would have been useful and dramatic was was handcuffs, what happened was pedestrian. It’s not, therefore surprising, that New Yorkers don’t know Schneiderman. Why should they? How is he relevant to their lives? Right now, he isn’t. If he wanted a different posture, he could recruit fearless prosecutors, reorganize his strategy and bring in more talent. The more likely possibility is continuation on his path, and if that happens, it will gradually become clear that he’s yet another transactional bureaucratic politician. That would be sad, especially after such a great start.
Schneiderman it turns out is involved in a jurisdictional dispute with Governor Andrew Cuomo over law enforcement around nonprofits, and is sending out what were probably innocuous but scary sounding letters to people with small nonprofits about governance. This couple was scared by that letter. And that’s all they know of Schneiderman.
Eric Schneiderman has a few more years before he’s up for reelection, this is poll from March isn’t that big a deal. But for a blue state Attorney General in a blue state, this is not good news.
“Both Comptroller Tom DiNapoli and Attorney General EricSchneiderman remain a mystery to more than half the voters. DiNapoli has 25-23 percent favorability rating with 52 percent having no opinion, and Schneiderman has a 21-23 percent favorability rating with 55 percent having no opinion,” Greenberg said. “However, when asked how Schneidermanand DiNapoli are doing in their jobs, voters are far more negative. Schneiderman has a negative 30-43 percent job performance rating, and DiNapoli‟s has a negative 26-45 percent rating.”The bottom line here is that voters don’t know anything about Schneiderman, but when pressed, they aren’t happy with him. And this isn’t an environmental constraint – New York Governor Andrew Cuomo is very popular. Even the state Assembly and state Senate are more popular than Schneiderman.
Polling isn’t always a meaningful way to think about how a political official is doing, and this polling shows not that New Yorkers are deeply happy or deeply angry with Schneiderman, but that they just don’t know who he is and that because of that he hasn’t met expectations.
This is a dramatic contrast to the last two AGs – Spitzer, who redefined the office with energy and brilliance, and Cuomo, who used it effectively as a stepping stone to the Governor’s mansion with savvy PR that masked his cover-up of Wall Street criminality. Those two were more prepared for this office than Schneiderman, so perhaps he’ll learn. We’ll see.
Schneiderman’s main effort in office has been the mortgage settlement negotiation. While he’s done some reasonable things on that front, such as his intervention in the Bank of America/Bank of New York settlement, by and large his position at the State of the Union and the financial fraud task force has not panned out. The tip-off that the financial fraud task force wasn’t going well was that the extremely knowledgeable Congressman Brad Miller was passed over for the coordinating job. Now it turns out that the task force, after three months, has accomplished the grand feat of posting that job public.
The basic calculation behind the deal was that relationships with the White House were valuable, he could get more resources to go after big banks, and that liberal organizing groups would rejoice. By one calculation, that seemed like a sweet spot, especially considering the need to support Obama’s reelection in 2012.. Politically, the support of those liberal groups didn’t really help – there was no penetration of the broad mass of the public, as the polling shows.
The legal strategy hasn’t really worked out. Schneiderman has been in office for more than a year. There have been no handcuffs or indictments on anyone involved in the financial crisis or the foreclosure crisis. An attorney general that doesn’t indict or prosecute isn’t worth paying attention to – and so voters aren’t. Of course, this is just his first year. He can turn it around. Bill Clinton, after a disastrous initial Presidency, fired a lot of his staff in the White House and brought in a more seasoned, professional team that righted the ship.
The New York Attorney General office is one of the most powerful offices in the entire country. Schneiderman is acting like legislator, but the job is more like a cop. The clients of the New York AG are the people of New York, not Moveon, not Barack Obama, and not Shaun Donovan. Schneiderman’s first year in office is over, and he has in fact not used power aggressively or creatively.
Is this the kind of Attorney General he will be for the rest of his term? Is his political team up to the task of building power in a state where Cuomo is ready to knife him at any point? Are they able to generate the kind of public posture necessary to wage the high profile attacks on financial villains? Is this legal team adequate? In April of 2011, Schneiderman’s office issued subpoenas of the Baum law firm, the foreclosure mill later revealed as having employees dress up as homeless people for Halloween. The US Attorney Preet Bharara cut a deal with this same firm, a fine with no admission of wrongdoing. Schneiderman’s office recently concluded its actions… with a fine and no admission of wrongdoing.
What would have been useful and dramatic was was handcuffs, what happened was pedestrian. It’s not, therefore surprising, that New Yorkers don’t know Schneiderman. Why should they? How is he relevant to their lives? Right now, he isn’t. If he wanted a different posture, he could recruit fearless prosecutors, reorganize his strategy and bring in more talent. The more likely possibility is continuation on his path, and if that happens, it will gradually become clear that he’s yet another transactional bureaucratic politician. That would be sad, especially after such a great start.
Mark Ames: Death By Foreclosure Killings and Staff Sgt. Roger Bales
By Mark Ames, the author of Going Postal: Rage, Murder and Rebellion from Reagan’s Workplaces to Clinton’s Columbine. Cross posted from Consortium News.
This past Thursday, a Modesto, California, man whose house was in foreclosure shot and killed the Sheriff’s deputy and the locksmith who came to evict him from his condominium unit. Modesto authorities responded by sending 100 police and SWAT snipers to counter-attack, and it ended Waco-style, with the fourplex structure burning to the ground with the shooter inside.
It’s not surprising that this should happen in Modesto: Last year the Central California city’s foreclosure rate was the third worst in the country, with one in every 19 properties filing for foreclosure. The entire region is ravaged by unemployment, budget cuts, and blight — the only handouts that Modesto is seeing are the surplus military equipment stocks being dumped into the Modesto police department’s growing arsenal.
The shooter who died was 45 years old and he appears to have lost his condominium over a $15,000 home equity loan he took out almost a decade ago, owed to Bank of America. The condo was sold at an auction for just $12,988 to a shady firm, R&T Financial, that doesn’t even have a listed contact number. Too much for the former security guard, who barricaded himself in the condo which had been in the family for decades. He refused to walk out alive.
Prepared for foreclosure violence: Modesto SWAT team in armored truck
These “death by foreclosure” killings have been going on, quietly, around the country ever since the housing swindle first unraveled. Like the story of the 64-year-old Phoenix man whose daughter and grandson were preparing to move in with him after losing their home to foreclosure — only to get a knock on his door surprising him with an eviction notice on the house he’d owned for over 30 years. Bank of America foreclosed on him despite his attempts to work out a fair plan.
We now know that the same banks that had been bailed out over their subprime fraud disaster were, by the time this happened, headlong into another criminal scheme, this time foreclosure fraud. The fraud was effected both illegally and in bad faith on a scale so vast it’s hard not to think that it was carried out by some marauding foreign army.
Anyway, the old man grabbed a .357 and a beer, walked outside into a sea of Phoenix cops and snipers, and fired his gun off until they cut him down in a hail of bullets.
Sometimes the “losers” in this class war make it easier on everyone else by killing themselves and setting themselves on fire as they’re being evicted, as one Ohio couple recently did. Others class war “losers” aren’t as cooperative, like a Florida man who was gunned down by police after he set his foreclosed townhouse on fire last year.
It’s exactly the sort of lopsided class war that Warren Buffett first officially acknowledged in 2006:
Murdering Afghan Civilians
Nothing illustrates the interlinking between the class war at home and the imperial wars abroad more starkly than the example of Staff Sgt. Roger Bales, the Army sniper accused last month of killing 17 Afghan civilians, mostly women and children.
The Army is trying to pin it all on Sgt. Bales’s supposedly deranged mental state, but their version of events contradicts what the victims and eyewitnesses in the village have been telling the few reporters who have had a chance to actually interview them. They’re saying that they saw several American soldiers participating in the massacre, as well as a helicopter.
Whatever the case, whether alone or with others, most people familiar with the case agree that for some reason, Sgt. Bales “snapped.” Invariably they’re over-psychologizing why he “snapped” — the military has blamed it on everything from his supposedly troubled marriage, to strain or stress, to an alleged alcohol bender.
Less well-known or discussed is what happened to Sgt. Bales on the other front: the class war front. Three days before his shooting rampage, the house where Bales’s wife and two children lived in Tacoma, Washington, was put up for a short sale, $50,000 underwater. This was exactly what Sgt. Bales and his wife feared might happen if the Army forced him into a fourth battlefield deployment.
The last time Sgt. Bales deployed — to Iraq in August 2009 — Bank of America foreclosed on the family’s rental property, a duplex that his wife had bought in 1999 that was also underwater. Within months of BofA taking their duplex, Sgt. Bales’s Humvee hit an IED and flipped over, causing brain and head injuries. On a previous deployment to Iraq, Sgt. Bales had one of his feet partially blown off by a bomb.
Censored US Army article celebrating Sgt. Bales in September 2011
Before being deployed to Afghanistan last year, he and his wife had been assured that the Army wouldn’t force Sgt. Bales, a highly-decorated hero who’d already sacrificed his physical wellbeing and his family’s financial health, back into combat.
Bales and his wife were planning their future as a career military family, on bases far from any combat zone, working up the Army’s pay scale year by year. But then in March 2011, a year before Sgt. Bales’s massacre, they were shocked and hurt by the Army’s decision to deny him his standard promotion to Sgt. First Class, which came with a much-needed pay hike.
(Last year, President Barack Obama’s Joint Chiefs of Staff chairman, Adm. Michael Mullen, said many of the austerity cuts would fall on soldiers’ pay and benefits rather than slashing weapons programs and force levels, which he called the “relatively easy” thing to do.)
When Sgt. Bales learned he wouldn’t get his promotion, his wife wrote on her blog:
It was all timed perfectly: Last December, the month Sgt. Bales was deployed to Afghanistan, one of the subprime loans worth $178,000, taken out in 2006, was timed to “reset” to as high as 10.8 percent interest, and call in its first full payment.
Joe Krumbach, former president of the Seattle Mortgage Bankers Association, reviewed this loan and the others sold to Sgt. Bales’s wife while he was in Iraq, and denounced them as “unconscionable.”
He told the Seattle Times, “The margins on these loans are disaster waiting to happen” and admitted that mortgage lenders deliberately targeted military families like the Bales family, swindling them into signing onto far pricier refinancing loans “that benefited lenders and mortgage brokers” at the expense of vulnerable military families, as well as minorities and low-income borrowers.
Another local real estate businessman who specializes in short sales agreed, telling Businessweek that “we set them up.”
Who’s at Fault?
So who did this? Who, in the class war equation, waged and “won” this class war on Sgt. Bales’s family, and so many other military families? What are their names? Where are they now?
As a matter of fact, there is a company name: Paramount Equity Mortgage. And there is a person’s name: Hayes Barnard, the CEO and co-founder of Paramount Equity. He lives in Roseville, California. In many ways, the story of the “winner” in this class war story is the most revealing, and enraging part of all.
Paramount Equity was founded in 2004, and quickly spread across the Western states, issuing some $8 billion in loans. Paramount Equity’s subprime predation really took off in 2006, right after the Bush Administration’s Department of Housing (HUD) and the FHA qualified Paramount Equity government insurance on its mortgages.
Almost immediately, Paramount Equity flooded the Tacoma region’s radio airwaves with deceptive ads hard-selling refinancing loans, featuring the voice of CEO Hayes Barnard promising the lowest rates, the most honest dealing, giving his personal guarantee.
However, a raft of fraud and deception charges followed. In 2008, the Washington State Department of Financial Institutions announced it was charging Paramount Equity Mortgage with deceptive lending practices and revoking its license.
Paramount stood accused of charging and collecting unearned fees, charging consumers to buy down interest rates without actually reducing the rate, failing to make required disclosures and making state and federally-required disclosures in a deceptive manner.
“Paramount failed to make proper disclosures in almost every loan we reviewed,” said Deb Bortner, director of DFI’s Division of Consumer Services. “Washington [state] has many licensed mortgage brokers who comply with the law. In today’s market, we simply do not need a mortgage broker engaged in deceptive conduct doing business in this state.”
The state’s charges also singled out Hayes Barnard for “engaging in a deceptive advertising campaign.”
As is so often the case, there’s far too little reported specifics on the actual nature of the fraud and deception. Sometimes you have to look in the comments sections on real estate or legal blogs from the affected region. Like this comment left on a marketing blog posting calling out Paramount Equity’s “lies”:
Getting Off Easy
For all the swindling and destruction, including the “unconscionable” exploding loans Paramount Equity foisted on Sgt. Bales’s wife while he was off fighting in Iraq, the state of Washington settled in 2009 with what can only be described as a wrist-massage: A fine of a mere $392,000, no admission of guilt.
Paramount even got to keep its license to operate. This, despite the incredible admission in the signed consent that “Paramount admits that during the relevant time period, Paramount did not maintain books and records.”
This is what a lopsided class war looks like: The financial fraudsters, the One Percenters, fleece the unsophisticated locals like 19th century Europeans plundering far-away aborigines.
One victim of Paramount commented bitterly on the settlement:
The end result: Hayes Barnard and Paramount Equity Capital are doing better than ever. In 2009, Hayes Barnard was named “Entrepreneur of the Year” by the Roseville Chamber of Commerce, the wealthy Sacramento suburb where Paramount Equity Mortgage is headquartered. In 2010, the Sacramento Business Journal honored him as one of Sacramento’s “40 under 40” leaders.
Hayes Barnard (l), American Hero
The big payoff came last year, when one of the world’s largest infomercial firms, Guthy-Renker, bought a “significant equity position” in Hayes Barnard’s company. You might know Guthy-Renker as the company that makes all those annoying Tony Robbins infomercials and Susan Lucci skincare infomercials.
Guthy-Renker also owns an equity stake in RealtyTrac, the leading foreclosure intelligence source. That’s good news for Hayes Barnard, because it means he’ll be able to wet his beak on the aftermath of the subprime plunder by getting first dibs on the best foreclosure deals. It’s a win-win for the One Percent.
In this degenerate 21st Century version of America, Hayes Barnard exemplifies everything that the current system rewards. In the anti-meritocracy we live in, the sociopaths and crooks are the “winners.” Being a “winner” means you get quoted adoringly in a Sacramento Business Journal Q&A, spouting out the blackest of unintentional black humor:
As for the “losers” in this class war: Sgt. Roger Bales’s wife and children are ruined. They have no home; they only own debts to the tune of hundreds of thousands of dollars, debts owed for life to the Hayes Barnards of this country. The “winner” — the swindler — is a community hero.
As for Sgt. Bales – whom the Army accuses of “snapping” for no good reason, accusing him of being a drunk, or of mental weakness, incapable of handling his marriage or the stress of combat – he might even be put to death. He now sits in Fort Leavenworth military prison, charged with the murder of 17 Afghan civilians.
The way the One Percenter “winners” see this story, it’s all proof that the system is working perfectly.
As the National Journal reported, “Nearly all of National Journal’s National Security Insiders agree that the military justice system can conduct a fair trial for Staff Sgt. Robert Bales.”
This past Thursday, a Modesto, California, man whose house was in foreclosure shot and killed the Sheriff’s deputy and the locksmith who came to evict him from his condominium unit. Modesto authorities responded by sending 100 police and SWAT snipers to counter-attack, and it ended Waco-style, with the fourplex structure burning to the ground with the shooter inside.
It’s not surprising that this should happen in Modesto: Last year the Central California city’s foreclosure rate was the third worst in the country, with one in every 19 properties filing for foreclosure. The entire region is ravaged by unemployment, budget cuts, and blight — the only handouts that Modesto is seeing are the surplus military equipment stocks being dumped into the Modesto police department’s growing arsenal.
The shooter who died was 45 years old and he appears to have lost his condominium over a $15,000 home equity loan he took out almost a decade ago, owed to Bank of America. The condo was sold at an auction for just $12,988 to a shady firm, R&T Financial, that doesn’t even have a listed contact number. Too much for the former security guard, who barricaded himself in the condo which had been in the family for decades. He refused to walk out alive.
Prepared for foreclosure violence: Modesto SWAT team in armored truck
These “death by foreclosure” killings have been going on, quietly, around the country ever since the housing swindle first unraveled. Like the story of the 64-year-old Phoenix man whose daughter and grandson were preparing to move in with him after losing their home to foreclosure — only to get a knock on his door surprising him with an eviction notice on the house he’d owned for over 30 years. Bank of America foreclosed on him despite his attempts to work out a fair plan.
We now know that the same banks that had been bailed out over their subprime fraud disaster were, by the time this happened, headlong into another criminal scheme, this time foreclosure fraud. The fraud was effected both illegally and in bad faith on a scale so vast it’s hard not to think that it was carried out by some marauding foreign army.
Anyway, the old man grabbed a .357 and a beer, walked outside into a sea of Phoenix cops and snipers, and fired his gun off until they cut him down in a hail of bullets.
Sometimes the “losers” in this class war make it easier on everyone else by killing themselves and setting themselves on fire as they’re being evicted, as one Ohio couple recently did. Others class war “losers” aren’t as cooperative, like a Florida man who was gunned down by police after he set his foreclosed townhouse on fire last year.
It’s exactly the sort of lopsided class war that Warren Buffett first officially acknowledged in 2006:
“There’s a class war, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”Buffett is right to call it a one-way war, in both a metaphorical sense and in a literal sense, given the endless wars being waged for over a decade now, wars that are tied to the class wars at home.
Murdering Afghan Civilians
Nothing illustrates the interlinking between the class war at home and the imperial wars abroad more starkly than the example of Staff Sgt. Roger Bales, the Army sniper accused last month of killing 17 Afghan civilians, mostly women and children.
The Army is trying to pin it all on Sgt. Bales’s supposedly deranged mental state, but their version of events contradicts what the victims and eyewitnesses in the village have been telling the few reporters who have had a chance to actually interview them. They’re saying that they saw several American soldiers participating in the massacre, as well as a helicopter.
Whatever the case, whether alone or with others, most people familiar with the case agree that for some reason, Sgt. Bales “snapped.” Invariably they’re over-psychologizing why he “snapped” — the military has blamed it on everything from his supposedly troubled marriage, to strain or stress, to an alleged alcohol bender.
Less well-known or discussed is what happened to Sgt. Bales on the other front: the class war front. Three days before his shooting rampage, the house where Bales’s wife and two children lived in Tacoma, Washington, was put up for a short sale, $50,000 underwater. This was exactly what Sgt. Bales and his wife feared might happen if the Army forced him into a fourth battlefield deployment.
The last time Sgt. Bales deployed — to Iraq in August 2009 — Bank of America foreclosed on the family’s rental property, a duplex that his wife had bought in 1999 that was also underwater. Within months of BofA taking their duplex, Sgt. Bales’s Humvee hit an IED and flipped over, causing brain and head injuries. On a previous deployment to Iraq, Sgt. Bales had one of his feet partially blown off by a bomb.
Censored US Army article celebrating Sgt. Bales in September 2011
Before being deployed to Afghanistan last year, he and his wife had been assured that the Army wouldn’t force Sgt. Bales, a highly-decorated hero who’d already sacrificed his physical wellbeing and his family’s financial health, back into combat.
Bales and his wife were planning their future as a career military family, on bases far from any combat zone, working up the Army’s pay scale year by year. But then in March 2011, a year before Sgt. Bales’s massacre, they were shocked and hurt by the Army’s decision to deny him his standard promotion to Sgt. First Class, which came with a much-needed pay hike.
(Last year, President Barack Obama’s Joint Chiefs of Staff chairman, Adm. Michael Mullen, said many of the austerity cuts would fall on soldiers’ pay and benefits rather than slashing weapons programs and force levels, which he called the “relatively easy” thing to do.)
When Sgt. Bales learned he wouldn’t get his promotion, his wife wrote on her blog:
“It is very disappointing after all of the work Bob has done and all the sacrifices he had made for his love of his country, family and friends.”Kathilyn Bales comforted herself with the assurances they’d been given that at least her husband wouldn’t be sent back into combat again — at least the family would be going together to one of the many non-warzone bases around the world. She wrote:
“Who knows where we will end up. I just hope that we are able to rent out the house so we can keep it. I think we are both still in shock.”Then came the real shock: the Army sent Sgt. Bales back into the war zone, into Afghanistan. His wife would have to deal with the more than $500,000 in mortgage debts on her own.
It was all timed perfectly: Last December, the month Sgt. Bales was deployed to Afghanistan, one of the subprime loans worth $178,000, taken out in 2006, was timed to “reset” to as high as 10.8 percent interest, and call in its first full payment.
Joe Krumbach, former president of the Seattle Mortgage Bankers Association, reviewed this loan and the others sold to Sgt. Bales’s wife while he was in Iraq, and denounced them as “unconscionable.”
He told the Seattle Times, “The margins on these loans are disaster waiting to happen” and admitted that mortgage lenders deliberately targeted military families like the Bales family, swindling them into signing onto far pricier refinancing loans “that benefited lenders and mortgage brokers” at the expense of vulnerable military families, as well as minorities and low-income borrowers.
Another local real estate businessman who specializes in short sales agreed, telling Businessweek that “we set them up.”
“It’s not an unfamiliar story, but it’s sad,” said Richard Eastern, a co-founder of Bellevue, Washington-based Washington Property Solutions, which negotiates short sales. “We’re going to send you off to war but we’re going to foreclose on your home.” He said many lenders offered loans they knew borrowers couldn’t repay. “And it’s not just soldiers, it’s everybody. We set them up.”The extent to which mortgage lenders and banks deliberately preyed on American military families is made clear by this little-known fact: the Tacoma region, home to Fort Lewis-McChord, the largest base in the Western United States and home to 100,000 military personnel and families, suffered one of the worst predatory subprime loan epidemics in the country, an anomaly in the state of Washington. According to Richard Eastern’s firm, roughly half of all home sales in that region are either foreclosures or short sales. As early as 2007, the Wall Street Journalsingled out Tacoma as one of the nation’s worst affected regions from subprime plunder.
Who’s at Fault?
So who did this? Who, in the class war equation, waged and “won” this class war on Sgt. Bales’s family, and so many other military families? What are their names? Where are they now?
As a matter of fact, there is a company name: Paramount Equity Mortgage. And there is a person’s name: Hayes Barnard, the CEO and co-founder of Paramount Equity. He lives in Roseville, California. In many ways, the story of the “winner” in this class war story is the most revealing, and enraging part of all.
Paramount Equity was founded in 2004, and quickly spread across the Western states, issuing some $8 billion in loans. Paramount Equity’s subprime predation really took off in 2006, right after the Bush Administration’s Department of Housing (HUD) and the FHA qualified Paramount Equity government insurance on its mortgages.
Almost immediately, Paramount Equity flooded the Tacoma region’s radio airwaves with deceptive ads hard-selling refinancing loans, featuring the voice of CEO Hayes Barnard promising the lowest rates, the most honest dealing, giving his personal guarantee.
However, a raft of fraud and deception charges followed. In 2008, the Washington State Department of Financial Institutions announced it was charging Paramount Equity Mortgage with deceptive lending practices and revoking its license.
Paramount stood accused of charging and collecting unearned fees, charging consumers to buy down interest rates without actually reducing the rate, failing to make required disclosures and making state and federally-required disclosures in a deceptive manner.
“Paramount failed to make proper disclosures in almost every loan we reviewed,” said Deb Bortner, director of DFI’s Division of Consumer Services. “Washington [state] has many licensed mortgage brokers who comply with the law. In today’s market, we simply do not need a mortgage broker engaged in deceptive conduct doing business in this state.”
The state’s charges also singled out Hayes Barnard for “engaging in a deceptive advertising campaign.”
As is so often the case, there’s far too little reported specifics on the actual nature of the fraud and deception. Sometimes you have to look in the comments sections on real estate or legal blogs from the affected region. Like this comment left on a marketing blog posting calling out Paramount Equity’s “lies”:
“I apologize if this is maybe a little off topic. I refinanced with Paramount back in 2004. Come 2009, my loan adjusted and I was left with no choice but to walk away with my 3 kids and stay at home wife. I had to rely on credit cards the last couple of years, even charging a couple mortgage payments.These sorts of stories can be found everywhere, and they repeat themselves over and over. And what’s most galling of all is that these plundering crooks preyed on those most vulnerable — military families suffering from the chaos of war, minorities, low-income people — to generate their fast riches, backed with government guarantees.
“We ended up filing ch. 7 and we are now renting and have ZERO (if not worse) credit. Today (Sept. 27, 2011) an auditor came to my door and gave me some info and verified other info regarding B-of-A filing a PMI [private mortgage insurance] claim. Sorry so long winded….
“One of the docs he showed me was of my stated income which was double … DOUBLE my income at the time. I NEVER would put myself into such a situation and lied. I honestly believe the number was changed and it was burried [sic] in an inch of docs I had to sign and I just didn’t see it.
“I’m not claiming complete innocence, because after all, I DID sign everything and agreed to the loan (which I didn’t know was a negative amortization loan. Hell, I didn’t even know what that meant). Now, we’re stable, but my financial future and creditworthiness is screwed. I barely got a $500 limit credit card at 17%.
“Do I have any type of recourse here? I’m not frivolous, but I am at a loss. In fact … I LOST everything. Thanks in advance.”
Getting Off Easy
For all the swindling and destruction, including the “unconscionable” exploding loans Paramount Equity foisted on Sgt. Bales’s wife while he was off fighting in Iraq, the state of Washington settled in 2009 with what can only be described as a wrist-massage: A fine of a mere $392,000, no admission of guilt.
Paramount even got to keep its license to operate. This, despite the incredible admission in the signed consent that “Paramount admits that during the relevant time period, Paramount did not maintain books and records.”
This is what a lopsided class war looks like: The financial fraudsters, the One Percenters, fleece the unsophisticated locals like 19th century Europeans plundering far-away aborigines.
One victim of Paramount commented bitterly on the settlement:
“We have not one, but TWO ugly loans which are breaking us from good ol’ Paramount Equity Mortgage. …. The citizens who signed these toxic documents are suffering EVERY DAY and losing their homes because Matt and Hayes need to make their yacht payment.Two “ugly loans” from Paramount Equity are what broke Kathilyn and Roger Bales.
“Our financial lives, that took 30 years to build, have been crushed because of the deception that occurred in their office (where no employee appeared to be over 40 years of age) I remember asking at the closing table, ‘Does anyone have gray hair in this building??!!’ It was unnerving. The parking lot looked like a BMW Sales Lot. …
“Soon, I intend to stop crying about our mortgages, as I have been doing over the last THREE YEARS… And Washington State Department of Financial Institutions: SHAME ON YOU. Shame on you.”
The end result: Hayes Barnard and Paramount Equity Capital are doing better than ever. In 2009, Hayes Barnard was named “Entrepreneur of the Year” by the Roseville Chamber of Commerce, the wealthy Sacramento suburb where Paramount Equity Mortgage is headquartered. In 2010, the Sacramento Business Journal honored him as one of Sacramento’s “40 under 40” leaders.
Hayes Barnard (l), American Hero
The big payoff came last year, when one of the world’s largest infomercial firms, Guthy-Renker, bought a “significant equity position” in Hayes Barnard’s company. You might know Guthy-Renker as the company that makes all those annoying Tony Robbins infomercials and Susan Lucci skincare infomercials.
Guthy-Renker also owns an equity stake in RealtyTrac, the leading foreclosure intelligence source. That’s good news for Hayes Barnard, because it means he’ll be able to wet his beak on the aftermath of the subprime plunder by getting first dibs on the best foreclosure deals. It’s a win-win for the One Percent.
In this degenerate 21st Century version of America, Hayes Barnard exemplifies everything that the current system rewards. In the anti-meritocracy we live in, the sociopaths and crooks are the “winners.” Being a “winner” means you get quoted adoringly in a Sacramento Business Journal Q&A, spouting out the blackest of unintentional black humor:
“As a younger professional, what is the biggest challenge you face?That’s how the class war “winners” rub it in on the rest of us — especially their victims. How can you function after reading such self-serving drivel, particularly if you’re one of the victims?
“As a young professional, the biggest challenge I face is finding the right balance between raising my three children all under 3 years old, being a supporting husband and leading my team as a CEO of three companies. … Achieving true success is to give, give, give and help as many people as you can while leading for your family, employees and community.”
As for the “losers” in this class war: Sgt. Roger Bales’s wife and children are ruined. They have no home; they only own debts to the tune of hundreds of thousands of dollars, debts owed for life to the Hayes Barnards of this country. The “winner” — the swindler — is a community hero.
As for Sgt. Bales – whom the Army accuses of “snapping” for no good reason, accusing him of being a drunk, or of mental weakness, incapable of handling his marriage or the stress of combat – he might even be put to death. He now sits in Fort Leavenworth military prison, charged with the murder of 17 Afghan civilians.
The way the One Percenter “winners” see this story, it’s all proof that the system is working perfectly.
As the National Journal reported, “Nearly all of National Journal’s National Security Insiders agree that the military justice system can conduct a fair trial for Staff Sgt. Robert Bales.”
Links 4/17/12
Memory Foraging: When the Brain Behaves Like a Bee Scientific American
On the Border Between Matter and Anti-Matter: Nanoscientists Find Long-Sought Majorana Particle Science Daily (furzy mouse)
All Five Star Trek Captains Unite at London Event Vancouver Sun (Valissa)
U.S. Senator Tours Fukushima, Warns Situation Worse Than Reported …Urges Japan to Accept International Help to Stabilize Dangerous Spent Fuel Pools George Washington’s Blog. “A small, makeshift sea wall erected out of bags of rock.”
Sordid footnote offers lesson for megabanks FT
Iceland’s President Explains Why The World Needs To Rethink Its Addiction To Finance Business Insider
‘Full Crisis Mode’ Returns to Spain Guardian
Spanish-Bailout Chatter Rising Marketbeat, Online WSJ
Exclusive: Briton killed after threat to expose Chinese leader’s wife Reuters
Rotting From Within: Investigating the Massive Corruption of the Chinese Military Foreign Policy
GSA Inspector General is Investigating Possible Bribes, Kickbacks WaPo
Americas Leaders End Summit in Discord NTN24
The Secret Service’s Prostitution Problem The New Yorker
Agents Assigned to Protect Obama Found Their Girls at the Pley Club in Cartagena, Colombia New York Daily News
Rousseff Warns of Tsunami of Money Rio Times
Argentinian President Moves to Nationalise Spanish-owned Oil Assets Guardian
Israeli Soldier Clubs Danish Protester with Rifle Guardian
Personalizing Civil Liberties Abuses Glenn Greenwald, Salon. First, they came for the Muslims.
The Privacy Nightmares of CISPA FDL
The Rise of the Killer Drones: How America Goes to War in Secret Rolling Stone (barrisj)
Texts from Drone. The trope of the moment.
The Zombie Files: Nearly 7,000 Stagnating Foreclosure Cases Lie Dormant in Palm Beach County’s Courts Palm Beach Post
Chriss Street: Orange County’s Iceberg Dead Ahead Testosterone Pit
Wells Fargo Now A Major Shareholder In For-Profit Prisons Crooks & Liars (furzy mouse)
“The Migration Myth” Economist’s View. ALEC pins the bogometer yet again.
The Games Politicans Play With Employment Statistics Economic Populist
Aluminum Warehouse Orders, Premiums Signal Scarcity of Metal Business Week
LA area Port Traffic increases in March, Exports Hit New Record Calculated Risk
Ishihara Shintaro Proposes the Purchase of the Senkaku Islands Japan Security Watch. “Deliciously interesting and mildly deranged.”
South Korea’s Economic Reforms – A Recipe for Unhappiness Guardian, Ha-Joon Chang (Aquifer)
Six degrees of Aggregation: How The Huffington Post Ate the Internet Columbia Journalism Review
Herbert Hoover: “Nothing is more important than balancing the budget with the least increase in taxes.” The American Presidency Project, via Credit Slips
Deny the Facts When They Contradict the Theory Bill Mitchell
Antidote du jour (furzy mouse):
On the Border Between Matter and Anti-Matter: Nanoscientists Find Long-Sought Majorana Particle Science Daily (furzy mouse)
All Five Star Trek Captains Unite at London Event Vancouver Sun (Valissa)
U.S. Senator Tours Fukushima, Warns Situation Worse Than Reported …Urges Japan to Accept International Help to Stabilize Dangerous Spent Fuel Pools George Washington’s Blog. “A small, makeshift sea wall erected out of bags of rock.”
Sordid footnote offers lesson for megabanks FT
Iceland’s President Explains Why The World Needs To Rethink Its Addiction To Finance Business Insider
‘Full Crisis Mode’ Returns to Spain Guardian
Spanish-Bailout Chatter Rising Marketbeat, Online WSJ
Exclusive: Briton killed after threat to expose Chinese leader’s wife Reuters
Rotting From Within: Investigating the Massive Corruption of the Chinese Military Foreign Policy
GSA Inspector General is Investigating Possible Bribes, Kickbacks WaPo
Americas Leaders End Summit in Discord NTN24
The Secret Service’s Prostitution Problem The New Yorker
Agents Assigned to Protect Obama Found Their Girls at the Pley Club in Cartagena, Colombia New York Daily News
Rousseff Warns of Tsunami of Money Rio Times
Argentinian President Moves to Nationalise Spanish-owned Oil Assets Guardian
Israeli Soldier Clubs Danish Protester with Rifle Guardian
Personalizing Civil Liberties Abuses Glenn Greenwald, Salon. First, they came for the Muslims.
The Privacy Nightmares of CISPA FDL
The Rise of the Killer Drones: How America Goes to War in Secret Rolling Stone (barrisj)
Texts from Drone. The trope of the moment.
The Zombie Files: Nearly 7,000 Stagnating Foreclosure Cases Lie Dormant in Palm Beach County’s Courts Palm Beach Post
Chriss Street: Orange County’s Iceberg Dead Ahead Testosterone Pit
Wells Fargo Now A Major Shareholder In For-Profit Prisons Crooks & Liars (furzy mouse)
“The Migration Myth” Economist’s View. ALEC pins the bogometer yet again.
The Games Politicans Play With Employment Statistics Economic Populist
Aluminum Warehouse Orders, Premiums Signal Scarcity of Metal Business Week
LA area Port Traffic increases in March, Exports Hit New Record Calculated Risk
Ishihara Shintaro Proposes the Purchase of the Senkaku Islands Japan Security Watch. “Deliciously interesting and mildly deranged.”
South Korea’s Economic Reforms – A Recipe for Unhappiness Guardian, Ha-Joon Chang (Aquifer)
Six degrees of Aggregation: How The Huffington Post Ate the Internet Columbia Journalism Review
Herbert Hoover: “Nothing is more important than balancing the budget with the least increase in taxes.” The American Presidency Project, via Credit Slips
Deny the Facts When They Contradict the Theory Bill Mitchell
Antidote du jour (furzy mouse):
Dirk Bezemer: Creating a Socially Useful Financial System
By Lambert Strether of Corrente.
Here’s more material from this iNet “Paradigm Lost” conference in Berlin (from which Yves has just returned). Hat tips to readers BT and JurisV for suggesting it.
Here’s the introduction:
NOTE Readers, sorry I had to take this down for a bit; fifty lashes with a wet noodle for lambert, for overexcitedly pressing the Submit button too early.
Here’s more material from this iNet “Paradigm Lost” conference in Berlin (from which Yves has just returned). Hat tips to readers BT and JurisV for suggesting it.
Here’s the introduction:
The first thing we need to say to each other is what do we mean by socially useful… Now the first thing to notice about this is that conventional cutting-edge macro monetary theory here is of no help at all in determing what is a socially useful credit sector, and that’s for the simple reason that there is no credit sector in the cutting edge macro models today.The whole presentation is deadpan screamingly funny, besides providing some superb analytical and polemic tools. Don’t listen to NPR with your morning coffee; listen to this!
OK, this goes back a long way: Frank Hahn [sp?] in the 1960s wrote a paper on problems of proving the existence of money in the multi-market equilibrium economy, so money itself is not supposed to exist even. This has been laid out and explained in many publications since. And my point is not to bash macroeconomics as it is today, but my point is that we really need to look for other models and other ways of thinking if we want to get to an assessment of what is a socially useful credit system. Supporting these you might say science fiction models [ouch], financially speaking, because there is no finance in them, the models that central bankers use have no banks — just let that sink in — is fictional history….
NOTE Readers, sorry I had to take this down for a bit; fifty lashes with a wet noodle for lambert, for overexcitedly pressing the Submit button too early.
Bill Black: Romney’s Lead Economist Urges Policies that will Cause the Next Financial Crisis
Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Cross posted from New Economic Perspectives.
Presidential nominees of either U.S. party can secure economic advice from any economist in the world. This makes it all the more amazing and sad that they choose economists with track records of disastrous policy advice. Bill Clinton chose Robert Rubin, George W. Bush chose Gregory Mankiw, Obama chose Lawrence Summers, and Mitt Romney chose Mankiw. Rubin and Summers led the Clinton administration’s efforts to gut financial regulation. Mankiw led the efforts under Bush. Collectively, these efforts created the criminogenic environment that produced endemic financial fraud (“green slime”).
Mankiw Morality
I have often emphasized the importance of George Akerlof and Paul Romer’s 1993 article (“Looting: the Economic Underworld of Bankruptcy for Profit”) to understand the economics of why we suffer epidemics of accounting control fraud and recurrent, intensifying financial crises. Mankiw was the “discussant” when they formally presented their paper. I was also present at their invitation. Mankiw was unconcerned about looting. It was my first introduction to Mankiw morality: “it would be irrational for savings and loans [CEOs] not to loot.” I was appalled, but my outrage at Mankiw paled when I observed that the members of the audience, professional economists, were not even made visibly uncomfortable by such a depraved response to elite fraud. CEOs owe fiduciary duties to the shareholders. Mankiw’s response to the findings that CEOs were looting their shareholders was to praise the rationality of the fraudulent CEOs (if you don’t loot you aren’t moral – you’re insane). One cannot compete with theoclassical economists’ unintentional self-parody.
Mankiw Still Loves the Regulatory Race to the Bottom that Breeds Endemic Green Slime
Mankiw wrote a column in the New York Times praising competition among governments.
I start with a historical note that falsifies Mankiw’s claim that competition among governments is desirable. Mankiw makes an historical argument for his claim that competition among governments is desirable and notes that the “founding fathers were no fools.” In an odd way, we can thank our immensely successful Constitution to the demonstrated disaster produced by governmental competition engendered by the Articles of Confederation. The States competed vigorously – to aid their merchants at the expense of “foreign” States (their neighboring States). They competed to impose more destructive internal tariffs (and other trade barriers) so aggressively that they crippled commerce. This is one of the principal defects that led the committee appointed to reform the Articles to instead junk them and adopt our Constitution. The Constitution created a nation instead of a confederation. The interstate commerce and supremacy clauses were key provisions of the new Constitution because the framers knew that competition among the States and the new federal government could threaten our nation’s survival.
In the context of public finance and financial regulation Mankiw’s praise for such competition demonstrates that he has learned nothing useful from our recurrent crises. This column discusses why competition among governments in financial regulation leads to the criminogenic financial deregulation that produces the epidemics of green slime that drive our financial crises. I have recently explained, in the context of opposing the JOBS Act, why the “regulatory race to the bottom” is an oxymoron designed by regular morons.
Mankiw read these words 19 years ago, but he has never understood what Akerlof and Romer were saying, even though they ended their article with this paragraph in order to emphasize their key policy message.
Worse, as executive and professional compensation has become far larger and more perverse, creditors and purchasers can grow wealthy by adopting a “don’t ask; don’t tell” policy designed to ignore even endemic fraud. Charles Calomiris, who is as culpable as any economists for spreading financial deregulatory dogma globally, suggests that the perpetrators may have deliberately created “plausible deniability.”
Mankiw tries to dress up the question of whether governments should compete as a philosophical dispute about the proper role of government. That is incorrect in the financial regulatory context. The regulators have to serve as the “cops on the beat” – and economics has emphasized for centuries the essential need for the government to provide such a rule of law and limit fraud and violence.
We know objectively that Mankiw, Bush, and Romney do not actually favor competition in financial regulation – for none of them opposed the OCC and OTS’ scorched earth campaign to preempt state efforts to regulate predatory lending and seek to reduce mortgage fraud. The states attempted to offer a competitive alternative to Mankiw, Greenspan, Bernake, and Bush’s indifference to fraud by elites. That competition could have led to vastly better outcomes for the citizens of the States that wished to be most vigorous against fraud and the nation. Mankiw was Chairman of Bush’s Council of Economic Advisors during the worst excesses of the federal agencies efforts to prevent the states from regulating entities (e.g., bank holding company affiliates not subject to federal regulation) that spread the green slime through the financial system. He did not oppose preemption. Mankiw and his political patrons do not favor competition in financial regulation – they favor regulation so weak that it will be ineffective. They hate financial regulations that are successful because such regulations challenge their world view that denigrates democratic government and government regulators.
Romney’s choice of Mankiw, one of the leading architects of and apologists for the crisis, as his leading economic advisor would be a superb issue for Obama to use in his reelection campaign but for one tiny problem. The Obama administration’s policies on financial regulation are created by the likes of Rubin, Summers, Geithner, and Bernanke. They differ only on the margins from Mankiw. The entire crew of leading economists for the last three Presidents and Romney has proven catastrophically wrong about financial regulation. The remarkable thing is that they do not drop their dogmas even after they engineer multiple crises over the course of three decades. We will soon experience the 30th anniversary of the Garn-St Germain Act of 1982, which set off a renewed “competition in laxity” among the States (principally California and Texas; whose S&Ls, collectively, caused roughly two-thirds of all S&L losses) and produced the criminogenic environment that led to the second phase of the S&L debacle.
There are economists and scholars from other fields that have track records of success as financial regulators. Note to Obama and Romney: there is no rule requiring you to choose as your leading advisors the purveyors of green slime and crisis. A significant number of Mankiw’s students walked out of his class to protest his presentation of failed dogma in the guise of economics. It is time for all of us as citizens to walk out on politicians who choose ethical and economics failures like Mankiw and Geithner as their advisors.
Bill Black is the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. He spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.
Presidential nominees of either U.S. party can secure economic advice from any economist in the world. This makes it all the more amazing and sad that they choose economists with track records of disastrous policy advice. Bill Clinton chose Robert Rubin, George W. Bush chose Gregory Mankiw, Obama chose Lawrence Summers, and Mitt Romney chose Mankiw. Rubin and Summers led the Clinton administration’s efforts to gut financial regulation. Mankiw led the efforts under Bush. Collectively, these efforts created the criminogenic environment that produced endemic financial fraud (“green slime”).
Mankiw Morality
I have often emphasized the importance of George Akerlof and Paul Romer’s 1993 article (“Looting: the Economic Underworld of Bankruptcy for Profit”) to understand the economics of why we suffer epidemics of accounting control fraud and recurrent, intensifying financial crises. Mankiw was the “discussant” when they formally presented their paper. I was also present at their invitation. Mankiw was unconcerned about looting. It was my first introduction to Mankiw morality: “it would be irrational for savings and loans [CEOs] not to loot.” I was appalled, but my outrage at Mankiw paled when I observed that the members of the audience, professional economists, were not even made visibly uncomfortable by such a depraved response to elite fraud. CEOs owe fiduciary duties to the shareholders. Mankiw’s response to the findings that CEOs were looting their shareholders was to praise the rationality of the fraudulent CEOs (if you don’t loot you aren’t moral – you’re insane). One cannot compete with theoclassical economists’ unintentional self-parody.
Mankiw Still Loves the Regulatory Race to the Bottom that Breeds Endemic Green Slime
Mankiw wrote a column in the New York Times praising competition among governments.
I start with a historical note that falsifies Mankiw’s claim that competition among governments is desirable. Mankiw makes an historical argument for his claim that competition among governments is desirable and notes that the “founding fathers were no fools.” In an odd way, we can thank our immensely successful Constitution to the demonstrated disaster produced by governmental competition engendered by the Articles of Confederation. The States competed vigorously – to aid their merchants at the expense of “foreign” States (their neighboring States). They competed to impose more destructive internal tariffs (and other trade barriers) so aggressively that they crippled commerce. This is one of the principal defects that led the committee appointed to reform the Articles to instead junk them and adopt our Constitution. The Constitution created a nation instead of a confederation. The interstate commerce and supremacy clauses were key provisions of the new Constitution because the framers knew that competition among the States and the new federal government could threaten our nation’s survival.
In the context of public finance and financial regulation Mankiw’s praise for such competition demonstrates that he has learned nothing useful from our recurrent crises. This column discusses why competition among governments in financial regulation leads to the criminogenic financial deregulation that produces the epidemics of green slime that drive our financial crises. I have recently explained, in the context of opposing the JOBS Act, why the “regulatory race to the bottom” is an oxymoron designed by regular morons.
Mankiw read these words 19 years ago, but he has never understood what Akerlof and Romer were saying, even though they ended their article with this paragraph in order to emphasize their key policy message.
“Neither the public nor economists foresaw that [S&L deregulation was] bound to produce looting. Nor, unaware of the concept, could they have known how serious it would be. Thus the regulators in the field who understood what was happening from the beginning found lukewarm support, at best, for their cause. Now we know better. If we learn from experience, history need not repeat itself” (George Akerlof & Paul Romer.1993: 60).Competition among governments in the financial deregulation context leads to a “race to the bottom” that produces devastating financial deregulation. The resultant financial deregulation is “bound to produce looting.” An economist should have no difficulty understanding this point, for classical economists stressed hundreds of years ago that the government’s central function is to prevent crime of force and fraud. Even Ayn Rand called for the government to prevent fraud. Because, as Akerlof and Romer stressed, accounting fraud produces a “sure thing” creditors do not exercise effective “private market discipline” against such frauds. Instead, they rush to fund the frauds’ rapid growth.
Worse, as executive and professional compensation has become far larger and more perverse, creditors and purchasers can grow wealthy by adopting a “don’t ask; don’t tell” policy designed to ignore even endemic fraud. Charles Calomiris, who is as culpable as any economists for spreading financial deregulatory dogma globally, suggests that the perpetrators may have deliberately created “plausible deniability.”
“asset managers were placing someone else’s money at risk, and earning huge salaries, bonuses and management fees for being willing to pretend that these were reasonable investments. [T]hey may have reasoned that other competi[tors] were behaving similarly, and that they would be able to blame the collapse (when it inevitably came) on an unexpected shock.”In combination, deregulation and perverse compensation are so criminogenic that they can produce green slime in such massive amounts that slime dominates massive aspects of finance.
“Who knew?”
Mankiw tries to dress up the question of whether governments should compete as a philosophical dispute about the proper role of government. That is incorrect in the financial regulatory context. The regulators have to serve as the “cops on the beat” – and economics has emphasized for centuries the essential need for the government to provide such a rule of law and limit fraud and violence.
We know objectively that Mankiw, Bush, and Romney do not actually favor competition in financial regulation – for none of them opposed the OCC and OTS’ scorched earth campaign to preempt state efforts to regulate predatory lending and seek to reduce mortgage fraud. The states attempted to offer a competitive alternative to Mankiw, Greenspan, Bernake, and Bush’s indifference to fraud by elites. That competition could have led to vastly better outcomes for the citizens of the States that wished to be most vigorous against fraud and the nation. Mankiw was Chairman of Bush’s Council of Economic Advisors during the worst excesses of the federal agencies efforts to prevent the states from regulating entities (e.g., bank holding company affiliates not subject to federal regulation) that spread the green slime through the financial system. He did not oppose preemption. Mankiw and his political patrons do not favor competition in financial regulation – they favor regulation so weak that it will be ineffective. They hate financial regulations that are successful because such regulations challenge their world view that denigrates democratic government and government regulators.
Romney’s choice of Mankiw, one of the leading architects of and apologists for the crisis, as his leading economic advisor would be a superb issue for Obama to use in his reelection campaign but for one tiny problem. The Obama administration’s policies on financial regulation are created by the likes of Rubin, Summers, Geithner, and Bernanke. They differ only on the margins from Mankiw. The entire crew of leading economists for the last three Presidents and Romney has proven catastrophically wrong about financial regulation. The remarkable thing is that they do not drop their dogmas even after they engineer multiple crises over the course of three decades. We will soon experience the 30th anniversary of the Garn-St Germain Act of 1982, which set off a renewed “competition in laxity” among the States (principally California and Texas; whose S&Ls, collectively, caused roughly two-thirds of all S&L losses) and produced the criminogenic environment that led to the second phase of the S&L debacle.
There are economists and scholars from other fields that have track records of success as financial regulators. Note to Obama and Romney: there is no rule requiring you to choose as your leading advisors the purveyors of green slime and crisis. A significant number of Mankiw’s students walked out of his class to protest his presentation of failed dogma in the guise of economics. It is time for all of us as citizens to walk out on politicians who choose ethical and economics failures like Mankiw and Geithner as their advisors.
Bill Black is the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. He spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.
Mortgage Settlement Enforcement Monitor Claims Bank Leaders Are Lying to Him
Matt Stoller is a fellow at the Roosevelt Institute. You can follow him at jttp://www.twitter.com/matthewstoller
I was listening to Bloomberg surveillance this morning and they were discussing the problem of skyrocketing rents mixed with tight credit for mortgages and increasing foreclosures. One of the hosts said that “everyone was waiting for the 49 state mortgage settlement” as a go signal to start foreclosures again. That’s what the mortgage settlement really is, a cultural, legal, and political signal of “all clear”. How exactly a new wave of foreclosures is supposed to help the housing market is still something of a puzzle, but it does show that the administration and most settlement pushers really do believe that the market needs to clear via foreclosures before it can reset. I guess we’ll see.
Meanwhile, here’s more evidence that the settlement is really just meant to kick off a new round of injury to homeowners. The monitor of the settlement, court-appointed North Carolina official Joe Smith, clearly doesn’t know how to do his job.
I was listening to Bloomberg surveillance this morning and they were discussing the problem of skyrocketing rents mixed with tight credit for mortgages and increasing foreclosures. One of the hosts said that “everyone was waiting for the 49 state mortgage settlement” as a go signal to start foreclosures again. That’s what the mortgage settlement really is, a cultural, legal, and political signal of “all clear”. How exactly a new wave of foreclosures is supposed to help the housing market is still something of a puzzle, but it does show that the administration and most settlement pushers really do believe that the market needs to clear via foreclosures before it can reset. I guess we’ll see.
Meanwhile, here’s more evidence that the settlement is really just meant to kick off a new round of injury to homeowners. The monitor of the settlement, court-appointed North Carolina official Joe Smith, clearly doesn’t know how to do his job.
The Federal Reserve and the Office of the Comptroller of the Currency could have built a best-of-breed project team inside their agencies to conduct the foreclosure reviews mandated by consent orders last April against twelve mortgage servicers. Instead, they delegated that job to each bank. As a result, the banks chose friendly firms and some of those choices are less than arm’s-length away from the problems and abuses they’re reviewing…He’ll meet personally with highly conflicted firms before depending on them? Like a meeting, in person? Wow! That’s a devastating accountability mechanism. Then there’s this embarrassing nugget.
“I don’t have a quick and easy answer to that right now,” Smith said when I asked him how he’s going to avoid the same conflicts of interest we’re seeing in the foreclosure reviews when he hires his own “primary professional firm.”
Finding the “appropriate balance between independence and capacity,” as Smith describes it, is not easy when sufficient independence may mean too little experience and sufficient experience may mean conflicts of interest. Conflicts of interest tempt consultants to bend the rules on behalf of current and future bank clients.
Smith has already invited about 40 handpicked professional services firms to express interest in the “primary professional firm” role. Depending on the response he gets, some will be invited to respond to a request for proposals and then subjected a highly personal final selection process.
“I’ll meet personally with the firm I’m going to depend on,” he promises. The banks, according to Smith, want to deal with one firm for settlement compliance reporting. That’s not surprising. Better the devil you know…
“If litigation against the banks continues and plaintiffs’ claims continue to contradict what I’m hearing from bank leadership,” Smith says. “I’ve got to pay attention to it.”So Smith is saying that if bank leaders continue to lie to him, he might have to pay attention to the fact that they are lying to him?
Joe Smith seems up for the task he’s agreed to. “I’ve got a lot of stuff I have to enforce. I’m hoping all the time and money the banks are spending on the foreclosure reviews will show up as we do our work.”I really hope Smith is not as stupid as he sounds.
Gerd Gigerenzer: On How Decisions are Really Made, Versus How Economists Say They Should Make Decisions, and Why the Folks in the Real World Often Have it Right
This is a bit of a sleeper of a presentation from the recent
INET conference. It was from a session titled “What Can Economists
Know?” which might cause willies among non-economists as being too much
about epistemology and not enough about issues that might give insight,
say, into why the overwhelming majority of economists in early 2007
thought a global financial crisis was impossible.
This talk by Gerd Gigerenzer is about heuristics, and why they are often superior to the more formal methods of analysis and decision-making fetishized by economists. He argues that one of the big things that economists miss is how to approach decision-making under conditions of risk (when probabilities of outcomes can be estimated with some accuracy) versus uncertainty (when you can’t estimate the odds of outcomes and/or may face unknown unknowns).
This talk by Gerd Gigerenzer is about heuristics, and why they are often superior to the more formal methods of analysis and decision-making fetishized by economists. He argues that one of the big things that economists miss is how to approach decision-making under conditions of risk (when probabilities of outcomes can be estimated with some accuracy) versus uncertainty (when you can’t estimate the odds of outcomes and/or may face unknown unknowns).
Murder, Inequality, Corporate Profits, and Free Trade Go Together
Matt Stoller is a fellow at the Roosevelt Institute. You can follow him on twitter at http://www.twitter.com/matthewstoller
Here’s the President on Sunday on a new trade deal with Colombia.
You can see the beginnings of financialization and globalization in the early 1970s. The trade gap gradually expanded during the Reagan Presidency in the 1980s, then the gap began widening after Clinton signed NAFTA and really took off in the late 1990s after American businesses figured out how to do business in China (after Clinton let China into the WTO). Then there was an explosion of the trade deficit and corporate profits after Bush came into office in 2000. This system briefly collapsed during the recession of 2007-2009. President Obama’s policy framework resuscitated this architecture of corporate profits at the expense of workers’ paychecks and, well, lives.
Here’s the President on Sunday on a new trade deal with Colombia.
Obama says US trade deal with Colombia has strong protections for workers and the environment….
“It’s not a race to the bottom, but rather it says each country is abiding by everything from strong rules around labor and the environment to intellectual property protection. And so I have confidence that as we implement this plan, what we’re going to see is extraordinary opportunities for both U.S. and Colombian businesses.”
Here’s the AFL-CIO President Rich Trumka’s mild and private (subsequently leaked) objection to the trade agreement.
Mr. Trumka noted that many Colombian employers continued to subcontract work in what he said was an illegal strategy to block unionization. He wrote that after municipal workers in the city of Jamundí began a unionization effort in January, the city fired 43 workers, two union leaders received threats, and one activist, Miguel Mallama, “was gunned down in the streets on March 25.”And here’s the reality, as seen by leaders on the ground.
“The United States was talking about how our situation has gotten better,” Cambindo, who visited Washington last week to voice his opposition to the deal, told HuffPost through a translator (video below). “But that’s not true. Our situation continues to be bad, and it’s getting worse.”Finally, this is the macro picture, a graph of corporate profits mapped against net exports. The core relationship is the arbitrage of labor costs by the threat of offshoring. The Colombia FTA, which is supported by both Obama and Romney, is simply continuity with this framework.
Colombia remains by far the world’s most dangerous country for union leaders and members. Nearly 3,000 activists have been murdered there in the last 25 years, with convictions resulting in a paltry 6 percent of the cases.
You can see the beginnings of financialization and globalization in the early 1970s. The trade gap gradually expanded during the Reagan Presidency in the 1980s, then the gap began widening after Clinton signed NAFTA and really took off in the late 1990s after American businesses figured out how to do business in China (after Clinton let China into the WTO). Then there was an explosion of the trade deficit and corporate profits after Bush came into office in 2000. This system briefly collapsed during the recession of 2007-2009. President Obama’s policy framework resuscitated this architecture of corporate profits at the expense of workers’ paychecks and, well, lives.
Links 4/16/12
Hi, in London (which means I lost a lot of Sunday due to
traveling….and I must confess a bit of puttering around my old haunts).
May get in a post of my own tomorrow PM before flying back to the US.
Wind farms ‘not big bird mincers’ BBC
Study: Historic Rise to Sea Levels in Pacific Ocean Linked to Climate Change Common Dreams (hat tip reader May S)
Report: One In Five U.S. Adults Does Not Use The Internet Techcrunch
Stop the nuclear industry welfare programme Guardian (hat tip reader May S)
Daring to Cut Off Amazon New York Times
Web freedom faces greatest threat, says Google founder Guardian
Unanswered Questions in F.C.C.’s Google Case Times (LS)
Source: Israel didn’t have grounds to bar entry of 40% of ‘fly-in’ protesters Haaretz (LS)
Dirty tricks and leaks at the heart of Scotland Yard Independent (LS)
America’s Prescription Drug Addiction Suggests a Sick Nation Common Dreams (hat tip reader May S)
Swimming naked in Brazil’s bubbly waters Ambrose Evans-Pritchard, Telegraph
DuPont’s armored car kit a hit in Brazil Reuters (LS)
Neil Heywood ‘poisoned by cyanide drops’ in China Telegraph
European Official Seeks Beefed-Up Anticrisis Fund Wall Street Journal. This is desperate.
Increasingly in Europe, Suicides ‘by Economic Crisis’ New York Times
Insane in Spain Paul Krugman
What’s wrong with Spain? Cinzia Alcidi, Daniel Gros, VoxEU
In Barcelona, Austerity With an Iron Fist Truthout
Spanish monarchy faces jumbo crisis FT (LS)
World economy still on life support Financial Times
Banks urge Fed retreat on credit exposure Financial Times
Judge bites banks New York Post (hat tip Abigail Field)
SCABIES: MY PARTING GIFT FROM LOS ANGELES’ METRO JAIL Yasha Levine, eXiled
Swing states: Obama still has electoral advantages despite a much-changed map Chris Cilizza, WaPo (LS)
GEITHNER: Romney’s Claim On Women’s Job Losses Is ‘Misleading And Ridiculous’ Clusterstock. Yeah, but I still enjoy seeing Geithner being put in the position of needing to carry the Administration’s water and twitching on camera.
“The Slow Recovery: It’s Not Just Housing” Mark Thoma
Gary Shilling: Bearish on the US economy; calling for a crash Edward Harrison
Corruption Is Why You Can’t Do Your Taxes in Five Minutes Matt Stoller, Republic Report
Sheila Bair’s Fabulous Idea: $10 Million Loans for Everyone! Phoenix Woman, Firedoglake
Antidote du jour (hat tip reader herman s):
Wind farms ‘not big bird mincers’ BBC
Study: Historic Rise to Sea Levels in Pacific Ocean Linked to Climate Change Common Dreams (hat tip reader May S)
Report: One In Five U.S. Adults Does Not Use The Internet Techcrunch
Stop the nuclear industry welfare programme Guardian (hat tip reader May S)
Daring to Cut Off Amazon New York Times
Web freedom faces greatest threat, says Google founder Guardian
Unanswered Questions in F.C.C.’s Google Case Times (LS)
Source: Israel didn’t have grounds to bar entry of 40% of ‘fly-in’ protesters Haaretz (LS)
Dirty tricks and leaks at the heart of Scotland Yard Independent (LS)
America’s Prescription Drug Addiction Suggests a Sick Nation Common Dreams (hat tip reader May S)
Swimming naked in Brazil’s bubbly waters Ambrose Evans-Pritchard, Telegraph
DuPont’s armored car kit a hit in Brazil Reuters (LS)
Neil Heywood ‘poisoned by cyanide drops’ in China Telegraph
European Official Seeks Beefed-Up Anticrisis Fund Wall Street Journal. This is desperate.
Increasingly in Europe, Suicides ‘by Economic Crisis’ New York Times
Insane in Spain Paul Krugman
What’s wrong with Spain? Cinzia Alcidi, Daniel Gros, VoxEU
In Barcelona, Austerity With an Iron Fist Truthout
Spanish monarchy faces jumbo crisis FT (LS)
World economy still on life support Financial Times
Banks urge Fed retreat on credit exposure Financial Times
Judge bites banks New York Post (hat tip Abigail Field)
SCABIES: MY PARTING GIFT FROM LOS ANGELES’ METRO JAIL Yasha Levine, eXiled
Swing states: Obama still has electoral advantages despite a much-changed map Chris Cilizza, WaPo (LS)
GEITHNER: Romney’s Claim On Women’s Job Losses Is ‘Misleading And Ridiculous’ Clusterstock. Yeah, but I still enjoy seeing Geithner being put in the position of needing to carry the Administration’s water and twitching on camera.
“The Slow Recovery: It’s Not Just Housing” Mark Thoma
Gary Shilling: Bearish on the US economy; calling for a crash Edward Harrison
Corruption Is Why You Can’t Do Your Taxes in Five Minutes Matt Stoller, Republic Report
Sheila Bair’s Fabulous Idea: $10 Million Loans for Everyone! Phoenix Woman, Firedoglake
Antidote du jour (hat tip reader herman s):
Philip Pilkington: Econ for Pirates – Rescuing Art from the Clutches of the Megacorporations
By Philip Pilkington, a writer and journalist based in Dublin, Ireland. You can follow him on Twitter at @pilkingtonphil
In truth the commoditised crap churned out by the great corporate machine is wholly reliant on creativity that emerges from the ground up. Today’s mainstream music scene relies on the hip hop and rap movements that emerged between the 1970s and the early 1990s in black communities in California and New York – needless to say that it is completely out of date but such is the stale nature of these institutions. Contemporary ‘alternative’ music feeds on the punk and post-punk scenes that emerged in Britain and the US in the late-70s and 80s – again, hopelessly out of date.
The great corporate machine simply sanitises and repackages culture in order to feed the masses through their tele-visual tubing. Fine. But it cannot truly create new flavours to inject into the tubes – and anyone who has an instinct to chase the new and the interesting will be quickly turned off. Put simply: corporate capitalism produces many things well – from clothing to furniture (although the question of style once again arises when we examine these in any serious way) – but it cannot produce true art. An alternative mechanism is needed.
Many have come to see this. People have discovered that the internet can provide them far more effectively with their cultural sustenance, so they take out the corporate tubing and logon. But this creates problems.
Stirrings of an Alternative
The economist Dean Baker outlined an alternative some time ago. He calls it the ‘artistic freedom voucher’. An excellent and detailed primer can be found here. Basically, taxpayers fork over money to their favourite artists and in return get tax credits. So, they pay their favourite artists some of the money that should have gone to the government in tax payments. The music would then be published under a ‘creative commons license’ that would allow everyone to access it for free.
Okay great. But this means that the government receives less money because the tax credits are ‘cashed in’ by people donating to the arts. This means that the government receives less revenue. Some have suggested that we offset this with taxes levied on digital audio equipment, blank CDs and internet connections. I have absolutely no problem with this. However, there is, once again, an alternative: we could run the system as a stimulus program and supplement it with an ambitious attempt to publicly subsidise institutions that artists could work in free from corporate influence at little personal cost.
Stimulating Creativity
Across the world today governments have been forced to run massive deficits in order to keep economies ticking over as private sector spending falls. Many of us would prefer that governments increase this spending in order to counter the unemployment that currently plagues most advanced capitalist countries.
Modern Monetary Theorists (MMTers) point out that governments that issue their own currencies can run such stimulus indefinitely until inflationary pressures build which will only happen after recovery takes place. They cite Japan as an example who, having stimulated their economy for over 20 years after the bursting of a private sector debt bubble in 1991, still have not encountered any problems with amassing government debts to the tune of 220% of GDP.
Countries that do not issue their own currencies have problems with large debt burdens – as is shown in certain Eurozone countries at the moment. However, either some formal mechanism is going to have to be put in place to allow these countries to run deficits or the Eurozone itself will collapse in the next few years.
(It is not difficult to fix the Eurozone problem. Although this is not the place to discuss such solutions – of which there are many – suffice it to say that the Eurocrats are well aware of what they can do but are being blocked by political pressures, mainly coming from the current German and French governments and their allies).
What we should do is build the ‘artistic freedom voucher’ into the deficits as a stimulus program. This has been done before in a slightly cruder way. During the Great Depression the Roosevelt administration used the works program they had put in place (the WPA) to channel money to artists. Many artists took part and it was a great success. (For music buffs it should be noted that Woody Guthrie received funding, who would later go on to exert a huge influence over Bob Dylan).
The ‘artistic freedom voucher’ is more consumer friendly, however, in that people are allowed to choose which artists they give their tax credits to. In this it allows greater consumer choice. However, it could be supplemented by a WPA-style compensation fund for new and emerging artists. After all, many a would-be artist might be intimidated by the prospect of having to attract funding to set themselves up, so perhaps we could have a pool out of which to subsidise them for the first, say, 12 months of their career until they can build a fan base for their material.
Through such a stimulus program we could also open public recording studios, public art studios, public filmmaking studios and other facilities that anyone could use for a very small fee. We could do all this in a highly decentralised manner, allowing artists, engineers, directors and producers full control of setting these facilities up while government representatives merely keep an eye on their funding to ensure they’re spending reasonable amounts.
The Politics
This piece was originally written, of course, for the pirates. For those unfamiliar, the pirates are a successful and promising political party that have taken root in Germany and other countries. They have a membership of 24,000 and are growing. They are particularly concerned with many of the issues outlined above.
The pirate political model is perfect for instituting the above reforms. It is through political piracy that the above reforms can be implemented. By supporting these reforms the pirates will no longer be subject to criticism that they are hurting artists and producers. Instead they will be supporting a system where artists can throw off the corporate shackles and embrace their inner potential.
Starting with the arts we can then move on to other areas such as drug patents. Why not have governments subsidise drug research? Rather than having corporations prey on their customers in search of profits – while in the process producing sometimes dangerous drugs with dubious medical value – we can leave it up to the scientists and keep the patents under creative commons, to be used by humanity when needed.
The piracy movement has already taken shape in places like Germany and Sweden, but this should be pushed further. By adopting a real platform based on MMT principles they can start to expand to other countries by encouraging disillusioned young people who support the public good over corporate greed to form pirate parties of their own.
Corporate Shills in Libertarian Clothing
There are, of course, arguments against such proposals. Corporate shills like J. Mark Stanley say that it restricts freedom of choice which, according to him, only the Great God of The Market can provide. Most people with any sense aren’t fooled by Stanley’s theological rhetoric. They know that The Market doesn’t exist in the way Stanley imagines that it should – that is, as a great equaliser that guarantees freedom of choice.
(I’m not going to link to Stanley’s article due to its horrific, robot-prose and juvenile argument. Interested readers can find it for themselves.)
In reality we live in a world where corporations control much of the decisions of production. These corporations operate in oligopolistic or monopolistic fashion. Personally, I don’t think it can be otherwise. Mass production on the scale that modern societies require necessitates huge manufacturing plants and institutions to assist in distribution. It’s really a simple issue of economies of scale – the more of a product is produced, the bigger need be the producing institutions.
Now, that’s fine for producing cell phones and sunglasses, but we simply cannot trust these institutions with other public goods – especially art. Anyone that is not content with the current output of MTV must see the point being made here clearly and shun utopia and childish libertarian rhetoric.
Personally, I know an awful lot of professional artists (I’m an amateur musician myself) and I know well how difficult they find it to survive. Many musicians I know are pressed into destroying their own output and creativity so as to play crappy popularised songs in bars just to make ends meet. Together with the corporate audio-visual tube-feeding system that many of us have in our homes, this is the reality of the ‘market’ insofar as it functions at all. The winner is the participant with the most advertising, PR and corporate monopoly-backing. Like it or lump it, that’s reality. Anyone who believes otherwise is merely a fantasist who has an emotional need for a quasi-religious doctrine – these people generally have no political influence because practical people laugh at them and shun them.
Let’s get to work on eking out a free space for our artists to operate in – a creative space, that is at the same time a commons.
The political forces are aligning, now all we need is the correct approach toward policy. The first thing we must do is to remove the fiscal shackles that bind the minds of most politicians and recognise that, in today’s world, government deficits are a good thing – and it is only a case of channelling funding in the right direction.
I seen a lot of rappers turn soft, I turn my TV off (uh)
And thugs got commercials (yea) thugs in commercials (uh)
And everybody’s chick turned gladiator and shit
No pimps, no hustlers, yo where’s your whips
No Maybachs, no Lambos on the field
Towncar, ridin Music Express
You the best example, yo the industry is whack yo
Now you can bet your label and your Phantom on that
– Kool Keith ‘Bamboozled’
Daily, megacorporations shovel crap into our eyes and ears. There is
no worse indictment for the so-called ‘free market’ – which is really
just a few giant bureaucratic institutions – than the suppression of
creativity in favour of the commoditised effluent of the corporate
culture industry.And thugs got commercials (yea) thugs in commercials (uh)
And everybody’s chick turned gladiator and shit
No pimps, no hustlers, yo where’s your whips
No Maybachs, no Lambos on the field
Towncar, ridin Music Express
You the best example, yo the industry is whack yo
Now you can bet your label and your Phantom on that
– Kool Keith ‘Bamboozled’
In truth the commoditised crap churned out by the great corporate machine is wholly reliant on creativity that emerges from the ground up. Today’s mainstream music scene relies on the hip hop and rap movements that emerged between the 1970s and the early 1990s in black communities in California and New York – needless to say that it is completely out of date but such is the stale nature of these institutions. Contemporary ‘alternative’ music feeds on the punk and post-punk scenes that emerged in Britain and the US in the late-70s and 80s – again, hopelessly out of date.
The great corporate machine simply sanitises and repackages culture in order to feed the masses through their tele-visual tubing. Fine. But it cannot truly create new flavours to inject into the tubes – and anyone who has an instinct to chase the new and the interesting will be quickly turned off. Put simply: corporate capitalism produces many things well – from clothing to furniture (although the question of style once again arises when we examine these in any serious way) – but it cannot produce true art. An alternative mechanism is needed.
Many have come to see this. People have discovered that the internet can provide them far more effectively with their cultural sustenance, so they take out the corporate tubing and logon. But this creates problems.
Stirrings of an Alternative
The economist Dean Baker outlined an alternative some time ago. He calls it the ‘artistic freedom voucher’. An excellent and detailed primer can be found here. Basically, taxpayers fork over money to their favourite artists and in return get tax credits. So, they pay their favourite artists some of the money that should have gone to the government in tax payments. The music would then be published under a ‘creative commons license’ that would allow everyone to access it for free.
Okay great. But this means that the government receives less money because the tax credits are ‘cashed in’ by people donating to the arts. This means that the government receives less revenue. Some have suggested that we offset this with taxes levied on digital audio equipment, blank CDs and internet connections. I have absolutely no problem with this. However, there is, once again, an alternative: we could run the system as a stimulus program and supplement it with an ambitious attempt to publicly subsidise institutions that artists could work in free from corporate influence at little personal cost.
Stimulating Creativity
Across the world today governments have been forced to run massive deficits in order to keep economies ticking over as private sector spending falls. Many of us would prefer that governments increase this spending in order to counter the unemployment that currently plagues most advanced capitalist countries.
Modern Monetary Theorists (MMTers) point out that governments that issue their own currencies can run such stimulus indefinitely until inflationary pressures build which will only happen after recovery takes place. They cite Japan as an example who, having stimulated their economy for over 20 years after the bursting of a private sector debt bubble in 1991, still have not encountered any problems with amassing government debts to the tune of 220% of GDP.
Countries that do not issue their own currencies have problems with large debt burdens – as is shown in certain Eurozone countries at the moment. However, either some formal mechanism is going to have to be put in place to allow these countries to run deficits or the Eurozone itself will collapse in the next few years.
(It is not difficult to fix the Eurozone problem. Although this is not the place to discuss such solutions – of which there are many – suffice it to say that the Eurocrats are well aware of what they can do but are being blocked by political pressures, mainly coming from the current German and French governments and their allies).
What we should do is build the ‘artistic freedom voucher’ into the deficits as a stimulus program. This has been done before in a slightly cruder way. During the Great Depression the Roosevelt administration used the works program they had put in place (the WPA) to channel money to artists. Many artists took part and it was a great success. (For music buffs it should be noted that Woody Guthrie received funding, who would later go on to exert a huge influence over Bob Dylan).
The ‘artistic freedom voucher’ is more consumer friendly, however, in that people are allowed to choose which artists they give their tax credits to. In this it allows greater consumer choice. However, it could be supplemented by a WPA-style compensation fund for new and emerging artists. After all, many a would-be artist might be intimidated by the prospect of having to attract funding to set themselves up, so perhaps we could have a pool out of which to subsidise them for the first, say, 12 months of their career until they can build a fan base for their material.
Through such a stimulus program we could also open public recording studios, public art studios, public filmmaking studios and other facilities that anyone could use for a very small fee. We could do all this in a highly decentralised manner, allowing artists, engineers, directors and producers full control of setting these facilities up while government representatives merely keep an eye on their funding to ensure they’re spending reasonable amounts.
The Politics
This piece was originally written, of course, for the pirates. For those unfamiliar, the pirates are a successful and promising political party that have taken root in Germany and other countries. They have a membership of 24,000 and are growing. They are particularly concerned with many of the issues outlined above.
The pirate political model is perfect for instituting the above reforms. It is through political piracy that the above reforms can be implemented. By supporting these reforms the pirates will no longer be subject to criticism that they are hurting artists and producers. Instead they will be supporting a system where artists can throw off the corporate shackles and embrace their inner potential.
Starting with the arts we can then move on to other areas such as drug patents. Why not have governments subsidise drug research? Rather than having corporations prey on their customers in search of profits – while in the process producing sometimes dangerous drugs with dubious medical value – we can leave it up to the scientists and keep the patents under creative commons, to be used by humanity when needed.
The piracy movement has already taken shape in places like Germany and Sweden, but this should be pushed further. By adopting a real platform based on MMT principles they can start to expand to other countries by encouraging disillusioned young people who support the public good over corporate greed to form pirate parties of their own.
Corporate Shills in Libertarian Clothing
There are, of course, arguments against such proposals. Corporate shills like J. Mark Stanley say that it restricts freedom of choice which, according to him, only the Great God of The Market can provide. Most people with any sense aren’t fooled by Stanley’s theological rhetoric. They know that The Market doesn’t exist in the way Stanley imagines that it should – that is, as a great equaliser that guarantees freedom of choice.
(I’m not going to link to Stanley’s article due to its horrific, robot-prose and juvenile argument. Interested readers can find it for themselves.)
In reality we live in a world where corporations control much of the decisions of production. These corporations operate in oligopolistic or monopolistic fashion. Personally, I don’t think it can be otherwise. Mass production on the scale that modern societies require necessitates huge manufacturing plants and institutions to assist in distribution. It’s really a simple issue of economies of scale – the more of a product is produced, the bigger need be the producing institutions.
Now, that’s fine for producing cell phones and sunglasses, but we simply cannot trust these institutions with other public goods – especially art. Anyone that is not content with the current output of MTV must see the point being made here clearly and shun utopia and childish libertarian rhetoric.
Personally, I know an awful lot of professional artists (I’m an amateur musician myself) and I know well how difficult they find it to survive. Many musicians I know are pressed into destroying their own output and creativity so as to play crappy popularised songs in bars just to make ends meet. Together with the corporate audio-visual tube-feeding system that many of us have in our homes, this is the reality of the ‘market’ insofar as it functions at all. The winner is the participant with the most advertising, PR and corporate monopoly-backing. Like it or lump it, that’s reality. Anyone who believes otherwise is merely a fantasist who has an emotional need for a quasi-religious doctrine – these people generally have no political influence because practical people laugh at them and shun them.
Let’s get to work on eking out a free space for our artists to operate in – a creative space, that is at the same time a commons.
The political forces are aligning, now all we need is the correct approach toward policy. The first thing we must do is to remove the fiscal shackles that bind the minds of most politicians and recognise that, in today’s world, government deficits are a good thing – and it is only a case of channelling funding in the right direction.
Yanis Varoufakis on Ringfencing Europe
Yanis Varoufakis gave an energetic, pointed, and insightful talk
at the INET conference in Berlin. His message was that the efforts by
European authorities were misguided, in that they were seeking to
ringfence individual countries, when it was the Eurozone as a whole that
needs to be shored up. And he contends this can be done now without
special approvals.
This talk is the antithesis of airy-fairy. For instance, consider these observations at around 5:30:
This talk is the antithesis of airy-fairy. For instance, consider these observations at around 5:30:
First, we have to accept that the ECB will not be allowed to monetize the debt, whether we would like it to do so or not, that there will be no EBC guarantees of debt issues of member states. There will not be any ECB purchases of government bonds in the primary market. And there will be no leveraging of the European financial instability mechanism, ah, stability I should have said.It is worth noting that one of the questions after the various presentations on the Eurozone mess raised the issue of the “democratic deficit”. The various speakers endorsed the idea of getting public approval, but they implicitly or explicitly acknowledged that it would be after the fact. Erm, so since when do you approve a fait accompli?
The second major assumption that I wish to make is that again, whether we like it or not, surplus countries will not consent to the issue of jointly and severally guaranteed Eurobonds. For good reason, in many ways. Since the yields, the interest rates that these bonds will fetch will be the weighted average of that which Germany and the Holland on the one hand and Greece and Portugal on the other will achieve, these Eurobonds will have interest rates that will be too high for the surplus countries and and not low enough for the deficit countries.
Thirdly, federation is not the solution. It may be a long-term objective for some of us, but we’re not ready yet, and it should not be an attempt to fix the Euro crisis.
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