Sickness Unto Death

Despair is conceived as the sickness, not the cure.

-- Soren Kierkegaard

The British are having an election and the question is does anyone care? Do the Brits even care? It is an election which well represents the great existential crisis of Western politics. Europe and America have no real politics. Our elections are just another aspect of consumer society, a choice between Coke or Pepsi, personality as packaging. All platforms are indistinguishable variations on the status quo. No variation can garner great support for change, because they offer no change. Instead of engaging the challenges of our times, our politics are the equivalent of Xanax. Despair is our politics.

Mark Ames has a really brilliant piece on financial matters. It is both funny and infuriating, hitting a perfect note on what's wrong with our politics -- a refusal to engage reality and the pure decadence of established power. A deeper representation is the oil spill gently beginning to lap the shores of the Gulf. Two weeks ago, the politics of despair announced we were opening drilling off the East Coast, continuing a now three decades aversion to confronting the realities of America's oil addiction. In the end, the politics of despair results in only one thing, death.

The answer to political despair is to engage political life. Rage is many times the first step, yet it needs to be accompanied by wisdom, an appreciation of wondrous life. If not, it leads to the lashing out we now witness in Arizona. The answer to political despair is not political faith, but political life. In response to the politics of despair and its Xanax peddlers, try Roy Batty's answer in Blade Runner, "More life, fucker."

Now We Are Talking!

A congrats to the boys at PIMCO, the writing was on the wall, nonetheless, congrats to the boys at PIMCO. Instead of wasting time ringing your Congressperson call up Mr. Gross and Mr. El-Erian and thank them for opening a door. Mr. El-Erain has an excellent MUST READ piece in the FT about Greece writing:

The Greek debt crisis is now morphing into something much broader. No wonder the European Union and the International Monetary Fund are scrambling to regain control of the rapidly deteriorating situation....Markets are now catching up to the reality of over-burdened public finances in the aftermath of the global financial crisis.

Ok, no big news there, that's party line from the world's biggest bond house. But here's the good news, a jubilee so to speak:

Absent some remarkable change in the next few days, things will get even more complex for the official sector. It may have no choice but to combine its own exceptional financing efforts with talks on a controversial approach that will be familiar to veteran emerging market observers – PSI, or “private sector involvement”.

PSI is the polite way to talk about the restructuring of some of the sovereign debt held by the private sector. It is based on a concept of burden-sharing in a disorderly world. It can appeal to governments as a seemingly easy way to ensure that massive public sector support to crisis countries does not flow back out in the form of payments to private creditors. Yet PSI is also hard to design comprehensively, harder to implement well and involves collateral damage and unintended consequences.

I don't mind the more vulgar terms default and debt destruction, but, if we need to say PSI to get the banks and bondholders take losses, let's by all means call it PSI. I agree wholeheartedly with Mr. El-Erian this will be exceedingly hard and it's going to cause a great deal of change, but that is where we are. In the end, it is a small, but most necessary element to a much larger needed discussion about money -- what it is and how it is created.

It places the bad theater that is Congressional financial reform in a whole new and very harsh light. The Reps have obviously accomplished some of what they needed in return for the boatload of money the banks dumped on them over the last few months. While the NYT continues with its propagandist line, which Ive read several times now, that the financial industry written bill "would be the most far-reaching restructuring of the nation’s financial regulatory framework since the aftermath of the Great Depression," which is true, if you leave out the restructuring of the 80s and 90s dismantling the New Deal financial structure, and this bill does little to rectify any of that. But lets not dwell on the negative, Mr. El-Erian in two paragraphs is opening possibilities on a new financial world far more than all elected officials in America combined in the last two years.

Greeks and Money

Boy, where's Donald Rumsfeld when you need him? Say what you will about Mr. Rumsfeld but he could turn a phrase, twisted thinking for twisted times. It seems "Old Europe" is once again pushing their way to the forefront of world affairs. We're full in to another week of the Greek debt crisis, and finally, thanks to the Germans, we're beginning to talk about real solutions. Bloomberg writes(tx credit writedowns):

German Chancellor Angela Merkel is coming under pressure from allied and opposition lawmakers to compel banks to help bail out Greece, threatening to further delay aid for the debt-strapped nation.

“It’s absolutely essential to bring Greece’s creditor banks on board to work out how we’re to solve this problem,” Hans Michelbach, deputy finance spokesman in parliament for Merkel’s CDU/CSU bloc, said today in an interview in Berlin. “Clearly there are risks in restructuring debt but banks can’t just shy away from responsibility and expect the European taxpayer to pick up the tab.”

This is a really important point. How this is done, how it is accomplished is essential for the future. However, having the banks and the bondholders take losses is only a first step, the next will be how do we change the money system. Can't we say that a money system, which flooded the world with bad money is one that isn't working too well?

In modern economic thinking, money really only comes into play concerning debt. In general, we have three schools of thought. The first is the old school, who believe that everything needs to balance, including money. The most doctrinaire don't even like paper currency, they'd rather have something hard, and preferably shiny, like gold as money. The second school is by far the largest, but paradoxically the most irrelevant, they make up theories as apologies for established power structures. They're not much help when power is shifting. The final school are in one way or other the descendants of Mr. Keynes, who made some very unorthodox observations about money. In short, you could say Mr. Keynes view of money was that a shortage of money should never be a hindrance to viable economic activity. Yet, Mr. Keynes was also very firmly in the first school, in some way, there needed to be some balance, money and money creation needed in some way(s) to be tied to the real economy.

The massive amounts of global debt has completely unbalanced the economy in so many ways, that it might be said we all live in some Rumsfeldian reality distortion. We have a failed system and we need to do some fundamental rethinking. The idea of simply adding more debt to relieve old debt isn't much of a solution, except to permanently indenture a good portion of the population and the economy. The question is first how we destroy the bad debt, in order to free the future. But in so doing, we're going to have to reform money and in reforming money, we're going to have to figure out what is a 21st century economy.

Too big to fail

The morning light.
Another fresh fight.
Another row, right, right, right, right.
And I'm Totally Wired. Just Totally Wired
-- The Fall

Greider has a good piece on Larry Summers. The best part he admits to yelling at the TV, which is why I neither watch much TV or listen to Larry Summers. But it certainly would have been a good thing to have taped the cracking of Greider's wizened elder demeanor to see he can curse and bellow like like a sailor in the middle of a three day binge. After all, he was a real newspaper man for many years. Lord knows we could use plenty more of that from people who actually have things to say. Larry Summers is the personification of the American political disease of failing-up, unaccountable power, an increasingly dangerous malignancy coursing through our body politic. Greider takes Summers to task for several prevarications, notably his babbling in favor of "too big to fail", which of course Larry's going to support, he's been working for the mega-corporations his whole career.

Quashing too big to fail is one of the most important concepts in American politics today, but it has little organized political constituency. Recently, it's been floating around the margins of debate, such that is, on financial reform, given new life by Joe Biden's Senate replacement Ted Kaufman. There's some irony there, as a post-New Deal Liberal, Old Joe never was and is no anti-too big to fail guy -- cheers to Mr. Kaufman. Breaking up the big banks is completely in the American tradition of anti-trust, which grew as a reaction to the burgeoning power of our industrial and financial corporations at the turn of 19th and 20th centuries. Anti-trust was a solution in the American tradition, its roots in Jefferson's seminal understanding that democracy is necessarily decentralized. Unfortunately, anti-trust fell by the wayside during the New Deal. The European import of Bismarkian welfare statism came to the forefront. An attempt was made to balance the centralized power of industrial corporatism by growing the power of the federal government. It failed, the corporations took over the government.

Once, a genuine and solid critique of some aspects of the New Deal, grounded in the American tradition against centralized power, was propagated by both some genuine conservatives and a few liberals. But for the most part, this critique disappeared a long time ago. What is called conservatism today is some sort of rotten mutation, offering no critique of corporatism, its leadership for the most part mega-corporate shills. On the other side are the liberals, and I'll say over the years, I've met few who were small "d" democrats, Bismarkian statism had become the liberals' North star. By the mid 20th century, the doctrines of industrialism such as economies of scale replaced republicanism, proliferating the politics of oligarchy.

Anti-too big to fail offers an excellent opportunity for reform politics today. Not just as another campaign to call your DC mega-corporate shill, but as the foundation for a real effort to organize republican reform. A place to begin a political dialog that cuts across the dysfunctional, effete, and increasingly empty categories promoted by the political class and the corporate media. A conversation asking how do we evolve self-government in the 21st century by restoring some of the principles of its 18th century founding combined with the knowledge and technologies of today.

Beware of Greeks Bearing Budgets

Another week, another solution to the Greek drama. The IMF is coming in, which should be a blow to the esteem of any self-respecting European, defaulting would have been the nobler path. With the announcement of at least $40 billion in new debt, European markets are all strongly up. It would seem at some point the correlation between the creation of debt and the rise in asset prices might become apparent to all. As Soros' former partner Jim Rogers said seven or eight months ago of the Fed's pumping, "The Dow 15, 16 thousand, why not?" Why not indeed.

The best is the Greek budget numbers show they should be running one of the big global banks:

Thursday's selloff began in part after the EU statistical authority, Eurostat, said Greece's 2009 budget deficit was €32.3 billion, or 13.6% of its gross domestic product. Greece had estimated the deficit at 12.7%. But in its semiannual report on EU debt and deficit, Eurostat noted that it still didn't have confidence in the new figure, which it said could actually be above 14%.

A year ago, Greece said its deficit for 2009 would come in at 3.7% of GDP. But the unveiling of a raft of accounting errors and misrepresentations pushed it up to 12.5% in October 2009. Greece, which has a years-long history of post facto changes to its debt and deficit numbers, later adjusted the figure to 12.7%. As recently as two weeks ago, officials denied reports that the figure could surpass 13%.

Well, stay tuned, the Greek economy continues to slow, we'll see what happens next week, speaking of which, it looks like we'll get financial "reform" next week. The Reps have changed their tune and are now making support noises. Some say the Reps are concerned about being on the wrong side of public opinion, but it's much more likely the banks are content with the Senate and House bills, and giving the nod. One should be most concerned about what's happening in DC when it's bipartisan.

Blanche Lincoln - An Important Political Lesson

Make sure when you say you're in it but not of it
You're not helping to make this earth a place sometimes called Hell
Change your words into truths and then change that truth into love
And maybe our children's grandchildren
And their great-great grandchildren will tell
I'll be loving you -- As

Andrew Cockburn has a good piece titled, Wall Street's Bad Dream, about Blanche Lincoln's surprise derivatives' bill. It got through her committee, but will soon be shredded in the greater Senate. At least it was an attempt, but really, putting derivatives on open exchanges or whatever else you want to do with them is besides the point, they shouldn't exist. More important is the political lesson here. Ms Lincoln drew a primary opponent and she is fighting to save her political life, such existential matters get elected officials to change, and that's one thing that is going to change our politics. If we do not create an organization that can elect people at every level of government, we will not get change from a political process entrenched with established interests, Wall Street being just one.

Another example here is the former/future Governor of California, who as Attorney General of the largest state of the union has pretty much been awol from the greatest scandal in American history, is starting to turn up the rhetoric on Wall Street. This too has indeed been instigated by political survival. While some may accuse Jerry of blowing with the political winds, he does have some political credibility on this issue. Here's the NYT from 1992:

As the self-proclaimed candidate of the people, Mr. Brown ventured to Wall Street and, standing near a statue of George Washington at Federal Hall, denounced "so much of the speculation, so much of the casino politics, so much of the casino profits" that he said fueled Mr. Clinton's campaign.

Brandishing a recent Business Week article with a headline calling Mr. Clinton a "toast of Wall Street," Mr. Brown declared, "His campaign is all about the few raising money to manipulate the majority." He later said, "Mr. Clinton is attached to a leash that is held by Wall Street."

There's some some donated campaign research and advise Jerry, that way lies the governor's mansion, but phew, it makes one realize how long this fight. That round lost to the Clintons leading the Democratic party into the desert. Did you see the other day, Mr. Bill throwing Larry Summers under bus on derivatives? It wasn't all that Wall Street money they collected over the years, the selling of the Lincoln bedroom, or go down the list, it was the bad advise of Larry Summers. Ho-Ho-Ho Bubba, you still got it! But it gets to the larger point, the Democratic party has zero credibility on financial reform. Can we build something that does?

The Fed

Bill Black gave some blistering and needed testimony before the Congress yesterday. Fraud is the operative word, not just by the banks, but "our" government regulators. You can catch part of his testimony here(tx ND 2.0). However, I'd really suggest reading the entire testimony and it's scathing indictment of the NY Fed and then president Mr. Geithner:

The FRBNY knew that Lehman was engaged in fraud designed to overstate its liquidity and, therefore, was unwilling to loan as much money to Lehman. The FRBNY did not, however, inform the SEC, the public, or the OTS (which regulated an S&L that Lehman owned) of the fraud. The Fed official doesn’t even make a pretense that the Fed believes it is supposed to protect the public. The FRBNY remained willing to lend to a fraudulent systemically dangerous institution (SDI). This is an egregious violation of the public trust, and the regulatory perpetrators must be held accountable. The Fed wanted to maintain a fiction that toxic mortgage product were simply misunderstood assets, so it allowed Lehman to keep dealing the three card monte scam.

...the Fed didn’t want Lehman and other SDIs to sell their toxic assets because the sales prices would reveal that the values Lehman (and all the other SDIs) placed on their toxic assets (the “marks”) were inflated with worthless hot air. Lehman claimed its toxic assets were worth “par” (no losses) (p. 1159), but Citicorp called them “bottom of the barrel” and “junk” (p. 1218). JPMorgan concluded: “the emperor had no clothes” (p. 1140). The FRBNY acted shamefully in covering up Lehman’s inflated asset values and liquidity. It constructed three, progressively weaker, stress tests – Lehman failed even the weakest test. The FRBNY then allowed Lehman to administer its own stress test. Surprise, it passed.

And with a straight face, Senate Finance Chair Chris Dodd, as the cornerstone of his banking reform, announced a new Consumer Protection Agency and other regulatory powers to be placed under the aegis of the Fed, which is really all you need to know about what is being "debated" as financial reform.

Americans and Government

Pew has a good and important survey on Americans and government. Andrew Kohut did an overview for the WSJ(tx pat) stating:

There is a perfect storm of conditions associated with distrust of government—a dismal economy, an unhappy public, and epic discontent with Congress and elected officials.

The issue of disenfranchisement is essential to understanding America today. It is an issue which has grown over time. Each economic downturn, it grows deeper in severity, and as we once again seem officially to be in economic cycles of boom and bust, the downturns will grow more frequent. Democrats have ignored the issue of disenfranchisement for decades, while Republicans have exploited it. If it's not addressed and resolved, it will eventually prove fatal to this republic.

The most interesting chart in the Pew survey shows the historical decline of government legitimacy and the growth of disenfranchisement:

You can see from the chart a decreasing trust in the federal government from the 1960s onward. There's reasons for this and they come from all sides of the political spectrum. Many have to do directly with the presidency: Vietnam, Watergate, Iran/Contra, and Iraq. Others have to do with a changing economy: the oil crisis, deindustrialization, stagnant wages, growing private and public debt, and evolving technology. Cultural/political issues have contributed. All these elements add up to a tremendous period of change over the past half-century.

Across all this, one trend of power has continued unabated, the continued centralization of political and economic power in DC and our mega-corporations, inciting a culture of corruption. Along with the complete destruction of the old elements of political association and the professionalization of politics, this has heightened both the sense and reality of disenfranchisement. Pew symbolizes this in their poll by using presidential administrations. There is no greater element in how Americans have been disenfranchised from politics than by the close to total domination of the presidency as the only touchstone most Americans have for politics.

We need to rethink politics and government in this country. Our two-hundred year old institutions are failing us. This is not an issue of left or right, Democratic or Republican, and liberal or conservative. It is an issue of citizen and government. A republic, self-government, cannot last long when it has lost legitimacy in the eyes of the majority of the citizenry. The only way we are going to restore trust in government is to first and foremost bring back the virtue of being a citizen, revitalizing and evolving our roles as citizens. It is an issue that can no longer be ignored. A growing economy could once again put the issue in the background, but it will be back in greater force the next downturn.

Fabrice Tourre as Scooter Libby

SEC's Goldman case brings up a lot of questions, most importantly, why is the only person named at Goldman, Fabrice Tourre, at the time, a 27 year old VP? In an email from 2007, the two-million dollar a year 27 year old writes:

"More and more leverage in the system. The whole building is about to collapse anytime now... Only potential survivor, the fabulous Fab(rice Tourre)... standing in the middle of all these complex, highly leveraged exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!"

Let's understand, everyone knew what was going on. Chris Whalen has some good insight over at Institutional Risk Analytics. Chris writes that in 2004 the SEC released some advise on the world of structured finance "focused almost entirely on protecting the dealers from reputational risk and not on protecting investors." He writes:

The fact of the 2004 notice by the SEC and other regulators illustrates the problem. Regulators clearly knew that a problem existed back then, yet the SEC waited until April of 2010 to actually do something constructive to rebalance the equation, to lean just a bit more in the direction of investors and a bit less in favor of the dealers. Keep in mind that it's not like the games played by GS and the Paulson organization were remotely unique. Just about every OTC dealer worthy of the description has at least one deal comp to this thing of beauty.

Yves Smith has started a list of other cases to be looked into, however, the SEC remains a captured regulatory agency. The Goldman case is a hope for the beginning of restitution, but only a beginning. In thinking about this yesterday, Scooter Libby popped to mind. Remember in 2005, looking at the fraud and criminality that brought about this naiton's occupation of Iraq, special prosecutor Patrick Fitzgerald laid out the case with his indictment of Scooter Libby, bringing responsibility to the feet of the Vice President, and thus the President. Mr. Fitzgerald, and I think rightfully, then said to the Congress it wasn't his role to indict the Vice President, that the constitution provided clear authority to the Congress in such matters. Of course that ended it, Scooter went to jail, while Mr. Cheney still pops up haunting our cowardly Democrats.

The President should bring the Attorney General into these matters, and the Congress should force his hand. Instead, we see the beginnings of attention aversion to a sham financial reform effort. How can you honestly address the issues, when you can't honestly address the problems? How can you have two financial reform bills, one already voted through the House, the other ready to go through the Senate, when the idea of criminality has not even been broached? We will not have financial reform until we have political reform. And unless the American people demand it, we will have neither.

Wall Street, Englewood, and the Rule of Law

Well, the SEC has finally brought a case, cheers to that. Though the SEC has proved itself particularly hapless over the past couple decades, one must nonetheless always allow for the restitution of any system. Let's hope this is just a start, a case against a Goldman underling is only that. The fraud on Wall Street is systemic. It is an industry that has turned predatory against both their clients and the greater society. People need to go to jail, and not the underlings, but the heads of the firms.

The NYT editorializes:

We urge everyone to keep a close eye on this case. If it is handled correctly, it should finally answer the question of whether malfeasance — and not merely unbridled greed, incompetence and weak regulation — was also responsible for the financial meltdown.

There is no question of malfeasance, it is rampant. The only question is what perpetrators go to jail. At the FT, Gillian Tett writes:

Thus while Goldman Sachs might have been the focus of Friday’s suit – and makes a tempting target for politicians – its practices were certainly not unique. I would not be at all surprised if other names eventually jump into the SEC gunsights too.

Of course, it remains to be seen in court whether any of this will actually produce convictions. Precisely because the subprime and CDO markets were so opaque during the credit boom, it was often very unclear what was legal – or not. Moreover, bankers were extremely adept at “innovating” to get round the law.

In what other industry is breaking the law considered innovation? If you want a layman's view of what was happening across the industry, check out Dylan Ratigan's explanation here. The greatest problem is the SEC brings civil not criminal cases, and a few slaps on the wrists to underlings and token fines, combined with fraudulent reform isn't going to do anything. The president needs to get the Attorney General to start bringing criminal cases. The problem with that is he will have to start prosecuting some of his funders. We've heard endlessly about the president's stint as a community organizer, but very little about how he received more Wall Street money than any candidate in American history. Of course you won't hear about that from the Republicans, because they're still scratching their heads trying to figure out how the hell the Democrat's became the party of Wall Street.

This is where real courage is necessary and if the President needs some fortitude I suggest next time he's back in Chicago, he take a stroll from his house in Hyde Park and head a few blocks south and west to Englewood, in his old state senate district. Englewood has lit up lately, 40 shootings in a couple days, four dead. Now, pretty much everyone in Englewood has a relative or knows someone in jail, and if the President was to tally up the total money pilfered by everyone from Englewood sitting in a jail cell, it wouldn't add up to one tranche of one fraudulent Wall Street CDO. Yet, the Englewood folks are all in jail, while Wall Street enjoys record bonuses.

If you want to see what happens to a society when the rule of law breaks down, just head to Englewood. As the report states, "A gulf of mistrust remains between many Englewood residents and police." Can you imagine after forty years of "law and order" as ubiquitous campaign policy across America and thirty years after Morning in America, there's people in this country that mistrust the police?

Residents say, unfortunately, similar incidents --while tragic-- are neither shocking, nor surprising, not in Englewood.

"It's something you come to expect around here. So, on a hot day, don't get too far from your house so when the shots start, you can run. Really. Always, around here, somebody is going to want revenge," a neighbor said.

When the rule of law breaks down, revenge replaces justice.

Fraud and the Economy

In her book Econned, Yves Smith showed the role Magnetar hedge fund played in manipulating the last two years of the sub-prime bubble. By going in and buying the worst of the worst and then betting against it with derivatives, Magnetar innovated the classic pump and dump scheme, riding off with hundreds of millions of dollars. The President calls this "savvy" business. Smith more recently connected Magnetar with Obama's Chief of Staff Rahm Emmanuel. Rahm's made a political career out of bringing Wall Street money to Democrats, first with the Clintons, and then in the Congress. It has been the greatest aspect of his success in politics.

Again, this all shows the great elements of fraud and corruption that are missing from the "debate" on the financial system. Of course, it's lacking because our politics are bought and sold by Wall Street and other assorted interests, which no one seems to argue about now, though no one seems to want to do anything about either. Any suggestion a political process, which can't deal with fraud and is drowning in money from Wall Street, is going to come up with any sort of financial reform is simply ludicrous. Dylan Ratigan has put up an excellent video completely catching the zeitgeist, Change the Law. It's a for the times variation of the 1970's "School House Rock" video, I'm Just a Bill. My suggestion is watch both.

Earlier in the week, I attended the Levy Institute's forum on the financial mess. Eliot Spitzer spoke and it made me want to cry. In fifteen minutes, every aspect of what's missing from the talk of the financial debacle, he nailed. Fraud, clawing back the outrageous bonuses, the capture of the regulatory agencies, the complete corruption of the NY Fed, and the overall costs to the economy, Spitizer talked about. His most important point on the current financial regulation "debate" was how the banks' public hemming and hawing about an already weak "Consumer Protection" plan was a giant bait and switch, distracting from all the other more essential elements the banks' lobbyists and elected officials are writing into law. He also made the great and essential point against those arguing for keeping the mega-banks together, that the most innovative aspect of the American economy of the last thirty years happened by breaking up AT&T. The only way we are going to get reform in the American political economy is by breaking up power, both corporate and government.

Finally, no one can argue the Fed's continued money pumping isn't having an impact. JP Morgan and B of A announced great profits on their trading desks, but continued problems with their loan portfolios. We seem to have innovated our financial system into a variant of the 19th century boom-bust system, but, we now have the Fed to pump money in as each bubble pops. How this all works out, well, place your bets. The Democrats are betting it will be good enough by November they can keep control of the Congress. And who am I to argue? The political skill of the Democrats is immense. Who else could take a completely unpopular group like the Republicans -- after 30 years, a completely exhausted and discredited political force -- and with control of the presidency and large majorities in the Congress, within a year, bring the Republicans right back into the game. That is a sublime politics beyond this fool's simple imagination.

3 Views

Here's three good views of political economy. The first(tx Alternet) is by the Matt Ryan, the mayor of Binghamton, New York, who is making the connection on the bankrupting of the economy with America's military misadventures:

In doing so, he’s joining a growing chorus of mayors, including Chicago's Richard Daley and Boston's Thomas Menino, who are ever more insistently drawing attention to what Ryan calls the country’s “skewed national priorities,” especially the local impact of military and war spending.

The second is a speech by Rich Trumka, head of the AFL-CIO. Trumka's speech is an excellent look at the growing inequality of the American economy and sets forth some good principles. Unfortunately, it also points to Labor's weaknesses these days. Mr. Trumka's view of the economy is very mid-20th century, if not 19th. We have to be much more creative in looking at where we are today, this is not 1933. Trumka's speech highlights what has been missing from Labor in its decades long inglorious decline. In Labor's youth, when it was vital, it was a movement of the greater public good. In it's last couple decades, it has simply become another special interest.

Finally, Doug Noland at Asia Times has a piece exploring the transference of the financial bubble to money itself. What does this mean? Well only one thing, it's not good. How does it play out? That's the question. How long can the money bubble go? Well, bubbles tend to last a lot longer than you think they can. The latest pump recipients were the Greeks, another week, another bailout.

Local government, equality, and money are three pillars of any reform movement.

on political economy culture

Oh God save history
God save your mad parade
Lord God have mercy
All crimes are paid!
-- God Save the Queen

Cultures are powerful forces, bending physical reality to their own ends. Today in the United States, we have a decadent political and economic culture, bordering on nihilism. We have the trappings, symbols, pageants, and even institutions of the old republic, that is democracy, but the political culture, is in opposition to its professed ends. The majority are led to believe politics works for their interests, yet nothing is further from the truth.

Satyajit Das has an excellent piece at Naked Capitalism on the culture of economics and modern finance. It reveals our last several decades cult of liquidity, which is an extremely important underlying factor to our financial mess, and yet there is little understanding. Draining liquidity from the system, that is making things less trade-able, is in fact, a most necessary step to making a sounder financial system, yet it is completely absent from the debate. Our response to the financial mess to date has been exactly the opposite. Das extrapolates further, trying to understand what the cult of liquidity has meant not just for finance but the larger culture:

In contrast with its ‘solid’ shape, ‘liquid’ modernity created new and unprecedented challenges. Social forms and institutions no longer had enough time to solidify into accepted frames of reference for human actions and long-term plans. Individuals now had to be flexible and adaptable, pursuing available opportunities. Liquid modernity required calculation of the likely gains and losses of acting (or failing to act) under conditions of endemic uncertainty.

The rise of financial markets and financialisation of everyday life is the irresistible result of liquid modernity. The rise of debt fuelled consumption and speculation derives directly from an uncertain world where risk taking is an essential survival strategy.

This doesn't diminish the importance of the culture of outright fraud endemic to finance, but it is necessary thinking in how we create a more stable system.

Speaking of cultures or more appropriately cults, the New York Times seems a little discombobulated these days. In the last week, they seemed to go full gear promoting the economy was coming back to...uhm..."normal". David Brooks had a piece how the 2000s weren't so bad, everybody was makng a 100K a year. Flyod Norris had a piece asking "Why So Glum," the recovery was in full swing, pointing to all the other post-war recoveries as example. They even had a big completely unreadable piece by their economic Nobel Prize winner claiming the same system creating our environmental problems, of which he is an expert, was going to solve those problems. I guess that means our corporate Democrats are getting ready to take on energy, morning in America, once again.

But, it was today's editorial on the financial mess that belies a great air of confusion. The Times claims apologies from our financial titans aren't enough, more importantly stating:

Congress’s efforts at financial reform appear to be weakened daily by politicians who are more concerned with campaign donations than regulating the financial system. This week, for instance, a Senate committee is expected to propose new regulations for derivatives that are more loophole than rule.

Well, that's news right? The role of the NYT in our political culture is to set the limits of sanctioned political debate in this country, you know, what's acceptable dinner conversation in DC and Manhattan. One thing that remains unacceptable to our establishment political culture, despite all the physical evidence, is that our politics are broken, and our elected officials are subservient to Wall Street and our mega-corporations, and really, anyone who wants to write a big enough check. That maybe true, but it's damn impolite to talk about. But don't worry, if the Democrats manage to get a finance bill, the front page of the NYT will call it historic, same as with an energy bill. We have one sick political culture.

Remember Odysseus

"'Son of Laertes and the gods of old,
Odysseus, master of land ways and sea ways,
put your mind on a way to reach and strike
a crowd of brazen upstarts. Three long years
they have played master in your house: three years
trying to win your lovely lady, making
gifts as though betrothed.'
-- Homer

It's been two and half thousand years since the Greeks have led Europe, time for them to dethrone the barbarous north. The Greeks should set the precedent and default. We're in for a long haul rebuilding some sort of stable global financial system, the Greeks can get the ball rolling in discussing how to destroy the debt that threatens to enchain too much of the globe, even the Post is getting nervous, from there, we can start talking about alternatives to corporate globalization. Michael Hudson has good piece over at the New Deal 2.0:

Until this debt problem is resolved - and the only way to resolve it is to negotiate a debt write-off — European expansion (the absorption of New Europe into Old Europe) seems over. But the transition to this future solution will not be easy. Financial interests still wield dominant power over the EU, and will resist the inevitable... The choice that Europe ends up making will likely drive millions into the streets. Political and economic alliances will shift, currencies will crumble and governments will fall. The European Union and indeed, the international financial system will change in ways yet to be seen.

So you modern Greeks, remember Odysseus, clever and strong. Meanwhile, the FT has a piece on the thing that really makes the modern world go round -- oil -- raising concerns that rising oil prices could soon put the quash on any global recovery.

Finally, RIP Malcolm McClaren. Say what you will about Mr. McLaren, but he was usually amusing, without him there'd have been no Sex Pistols and pop-music of the last several decades would have been a lot less fun and interesting, and you'd still probably be wearing flares. As he stated:

We were fighting what was an obvious, difficult, never-ending and probably impossible struggle to shoot arrows at this oncoming juggernaut of what was a corporate machine that was going to sweep us away and turn this whole culture into nothing more than a karaoke playground.

Words to live by, along with "Never trust a hippie." Cheers

Parasites

If you've spent much time in the less industrial areas of this planet, you almost inevitably end up with some kind of parasite. When they infest your intestinal tract, you suddenly become well aware of just how important this system is to your body. Now some parasites run their course fairly quickly, while others can linger for years. Many otherwise healthy organisms can live with parasites for a long time, but particularly virulent types will eventually kill. Our financial system, the intestinal system of our economy, is infested with parasites. They brought the global economy to its knees and continue actively feeding and multiplying in their host. If we do not rid our system of these parasites, they will eventually bring us down.

A couple years ago, one of the great books on our financial parasites was released, Kevin Phillips' Bad Money. Phillips diagnosed the problem:

Without much publicity, the financial services sector—banks, broker-dealers, consumer finance, insurance, and mortgage finance—muscled past manufacturing in the 1990s to become the largest sector of the US private economy. By 2004-6, financial services represented 20 to 21 percent of gross domestic product, manufacturing just 12 to 13 percent.

Our economy became infested with parasites living off the host, and one might add, living quite well. Understand what this has meant to the vast majority of Americans, that is the host body, by looking at financial wealth distribution in the United States(tx mish):

• The Bottom 80% have a mere 7% of financial wealth.
• The Bottom 80% have a mere 8.9% of stock ownership
• Only 31.6% of the population has more than $10,000 in stocks.
• 70% of white families' wealth is in the form of their principal residence; for Blacks and Hispanics, the figures are 95% and 96%, respectively.

So, we see despite differences of race, gender, or however else "identity politics" wants to cut up the American body politic, the vast majority have common interest in ridding ourselves of these increasingly harmful parasites. Over the last several decades, our parasites evolved around the old anti-bodies of the New Deal, they called it innovation. Jesse's Cafe Americain has some excellent numbers on a particularly destructive innovation known as derivatives. The top five banks, -- JP Morgan, Goldman, Citi, Bank of America, and Wells Fargo -- have over $200 trillion in derivatives, bet on an entire global economy of only $70 trillion. There's been no let-up in derivative creation over the past two years, in fact, they remain an important money maker. Derivatives offer no value to the system, in fact, what they do is make it incredibly more unstable by misleadingly implying they mitigate risk instead of adding to it.

We need to rid our economic body of the parasites. We need to cut the size of our financial sector in half at least. We need to cut the middleman of Wall Street out of public money creation and retie investors directly to their investments. We must get rid of the notion that risk is avoidable. Investors need to be directly responsible for losses, just as they directly benefit from profit. Unfortunately, the process to do this is broken. One of the great problems of our parasite infestation is they formed a symbiotic relationship with the host's defense mechanisms -- our elected officials. Dylan Ratigan(must watch) pointed out yesterday that $344 million has gone to the Congress from Wall Street to fight the reform necessary to rid our system of its parasite infestation.

The most recent manifestation of this symbiotic relation is House Financial Chair Barney Frank's top aid Pete Roberson, who wrote Barney's derivative reform legislation, quit and went to work lobbying for the operation most likely to benefit from the legislation he wrote! Barney, supposedly the hope of reform, showed bluster and outrage, but it's hard to take seriously when Barney's taken a half-million and counting from Wall Street and the banks in the last two election cycles alone.

The American economy will not get back to health into we rid ourselves of this parasite infestation. We will not be able to do that until we revive the health of our politics.

Sibyl Economy

The Sibyl, with frenzied mouth uttering things not to be laughed at, unadorned and unperfumed, yet reaches to a thousand years with her voice by aid of the god.
-- Heraclitus

Sibyls were the oracles of ancient Greece. You'd go to them when you had a heavy decision, but the problem was their advise was never straight forward and prone to misinterpretation, not quite as bad as a modern pollster, but they could get you in serious trouble. For example, Croesus a great king of ancient Greece, went to the Delphic Oracle seeking advise about attacking Persia. She replied, "If you attack Persia, a great empire will fall." He did and a great empire fell, unfortunately for Croesus it was his. Looking at the global economy today, one can't help but think you'd get a better view of the future from any Sibyl.

Global financial markets are so manipulated and pumped full of discount dollars, they are relatively useless in divining. The US stock market on p/e value is approaching historical highs, while a metal like copper sits near historic highs, despite a global economy that sits well below its peak of two years ago. Now there's no denying Asian economies led by China started growing again, but how sustainable that growth, considering the faults of over-indulging history has revealed with any command and control economy is truly an important question. The question of over-capacity in China is an important one, and the Chinese have announced they are beginning to shutter smaller steel and electricity plants.

Now, if you look at China, India, Australia and the other Asian economies minus Japan, they are a little over 20% of the global economy. Nothing to sneeze at, however a great chunk of that is tied to exporting to what we can call the old global economy, that is the US, Japan, and the EU, which still comprise almost half the global economy. Now the old global economy is drowning in debt, and depending on who you ask, that either matters or it doesn't. Right now for the Greeks, who need a trip up to Delphi, it matters. For the EU as a whole, it seems to matter too, as growth seems at best spotty. The Japanese remain entrenched in deflation and the American economy appears little better than flat.

The most interesting oracle for the modern world is the price of oil, which despite the greatest global slow-down in post-war history managed to stay above $70 a barrel and today sits around $87, which no way helps the global economy as presently structured. Begging the question, what if the global economy gets back to its 2007 peak, where then the price of oil?

on money

A dream too tired to come true
Left a rebel without a clue
Won't you tell me what I should do?
I could purge my soul perhaps
For the imminent collapse
Oh yeah, I'll tell you what we could do
You be me for a while
I'll be you
-- Replacements

The bank policy of "pretend and extend", or forbearance if you'd rather, has done better than one might have expected since it became official policy last spring. Tied together, and this is essential, with the Fed pumping money into the banking system, it's all gone rather well to date. Who can call the banks insolvent when you can't even get a good handle on what that means? In the end, the only difference between a good bank and a bad bank is good loans and bad loans, and well, as our Federal Regulators, whether at the Fed, Treasury, or any of the other agencies are prone to say, who should really decide that? Not them anyway.

What's interesting in our current political economy is that private debt, especially if you're big enough, has no limits, while public debt is getting quite a bit of attention, the latest is the City of Angels. Yesterday, Los Angeles' City Controller "declared an urgent financial crisis." The city will run out of money by July. What's amusing about this is the LA Department of Water and Power is pretending to cut the city off from one of its important revenue sources. What's even more amusing is the person doing the extorting is David Freeman, the personification of American politics chronic failing-up disease. If you're unfortunate enough to remember, Freeman was appointed some kind of Czar during California's electricity fiasco ten years ago, where he couldn't help himself from writing billions of dollars in public checks to private energy extortioners. The then Governor Gray Davis called it a solution. Gray was rightfully recalled two years later.

Of course, the dichotomy between public and private debt is not just noticeable in Los Angeles and the rest of California, Matt Taibbi has a really excellent piece in Rolling Stone about the greatest example in the New South -- Birmingham, Alabama. They done bin looted real good by JP Morgan! What's the difference between an insolvent JP Morgan and an insolvent Birmingham, AL? The answer is the Fed and the Treasury. JP Morgan can "pretend and extend", while the Fed pumps in billions of dollars to keep them afloat, no such luck for the people of Birmingham or Los Angeles. In fact, if you remember last spring, Mr. Geithner and Mr. Summers did their best German imitations and firmly said, "Nein!" The Federal government would not be bailing-out states and municipalities, those were privileges reserved -- federally reserved -- for Wall Street and the big banks.

The Greeks are in the same position as US states and municipalities. The Germans, playing the Fed, have adopted a Greichenland raus Europa position, which doesn't seem to be sitting too well with anyone. All of this is a very forceful reminder that how money is controlled is an essential element of political economy, and if you don't have democratic money creation and control, you don't have much democracy. Anyway, "extend and pretend" tied to the Fed's pump is going along nicely for the banks and Wall Street. The Dow's back to eleven-thousand and the hollowing out of the real American economy continues unabated, looks like everything is back to normal.

USA INC

Here's a nice short interview(tx credit writedowns) with Brian Murphy, history Prof at Baruch College, regarding the recent decision by the Supreme Court to lift the veil of pretense on corporate power and the political process. The republic and corporations, birthed in the same era, have had uneasy relations the entire time. However, we have never seen the level of corporate dominance reached in the past several decades, to the point, it now threatens the republic's very existence.

Murphy discusses some fundamental issues concerning the history of corporations in America:

Americans inherited the legal form of the corporation from Britain, where it was bestowed as a royal privilege on certain institutions or, more often, used to organize municipal governments. Just after the Revolution, new state legislators had to decide what to do about these charters. They could abolish them entirely, or find a way to democratize them and make them compatible with the spirit of independence and the structure of the federal republic. They chose the latter.

... as part of this effort to democratize corporations, state charters specifically spelled out how shareholder elections were to be conducted to choose directors. Corporations were supposed to resemble small republics, with directors balancing interests among shareholders.

In regards to the recent Supreme Court decision which gives corporations the rights of individuals and other associations, Murphy states:

The Founders did not confuse Boston's Sons of Liberty with the British East India Company. They could distinguish among different varieties of association — and they understood that corporate personhood was a legal fiction that was limited to a courtroom. It wasn't literal. Corporations could not vote or hold office. They held property, and to enable a shifting group of shareholders to hold that property over time and to sue and be sued in court, they were granted this fictive personhood in a limited legal context.

So even as this generation of Americans became comfortable with the idea of using the corporate form as a way to set priorities and mobilize capital, they did their best to make sure that those institutions were subordinate to elected officials and representative government. They saw corporations as corrupting influences on both the economy at large and on government — that's why they described the East India Company as imperium in imperio, a sort of "state within a state." This wasn't an outcome they were looking to replicate.

The intent of these laws is therefore the opposite of what the Court asserted in Citizens United. Free incorporation was meant to limit the power of corporations by democratizing the corporate form through dilution. It was supposed to be a giant leap in distinguishing between public and private spheres of activity.

"Subordinate to elected officials and representative government," now there's a thought! We live in an era of just the opposite. Our entire political system is subordinate to the interests of mega-corporations. We replaced the constitution with some myths about "free markets", where power for the first time in the history of human social systems does not exist, which is why the Supreme Court can with a straight face suggest Exxon, JP Morgan, Microsoft, Monsanto et al have the same political rights as you. That's democratic equality in the 21st century.

That the state is now subordinate to the corporation can be seen in every piece of legislation passed. Instead of taking on corporate power, our elected officials pay them to go along. Look at the stimulus bill, read through the proposed energy legislation which is chock-full of money for every corporate energy interest in existence, and of course, the health care bill is a treasure chest for the insurance and pharmaceutical industries. The only real question on the financial bill is how much Wall Street and the mega-banks will get. The last several decades of the Roman republic saw a completely corrupted system where politics came down to one thing, a competition to who could loot the treasury and give away the greatest amounts to entrenched interests.

Welcome to Res Publica 2010.

Mindless Menace of Violence

Robert Francis Kennedy
City Club of Cleveland, Cleveland, Ohio
April 5, 1968

This is a time of shame and sorrow. It is not a day for politics. I have saved this one opportunity, my only event of today, to speak briefly to you about the mindless menace of violence in America which again stains our land and every one of our lives.

It is not the concern of any one race. The victims of the violence are black and white, rich and poor, young and old, famous and unknown. They are, most important of all, human beings whom other human beings loved and needed. No one - no matter where he lives or what he does - can be certain who will suffer from some senseless act of bloodshed. And yet it goes on and on and on in this country of ours.

Why? What has violence ever accomplished? What has it ever created? No martyr's cause has ever been stilled by an assassin's bullet.

No wrongs have ever been righted by riots and civil disorders. A sniper is only a coward, not a hero; and an uncontrolled, uncontrollable mob is only the voice of madness, not the voice of reason.

Whenever any American's life is taken by another American unnecessarily - whether it is done in the name of the law or in the defiance of the law, by one man or a gang, in cold blood or in passion, in an attack of violence or in response to violence - whenever we tear at the fabric of the life which another man has painfully and clumsily woven for himself and his children, the whole nation is degraded.

Yet we seemingly tolerate a rising level of violence that ignores our common humanity and our claims to civilization alike. We calmly accept newspaper reports of civilian slaughter in far-off lands. We glorify killing on movie and television screens and call it entertainment. We make it easy for men of all shades of sanity to acquire whatever weapons and ammunition they desire.

Too often we honor swagger and bluster and wielders of force; too often we excuse those who are willing to build their own lives on the shattered dreams of others. Some Americans who preach non-violence abroad fail to practice it here at home. Some who accuse others of inciting riots have by their own conduct invited them.

Some look for scapegoats, others look for conspiracies, but this much is clear: violence breeds violence, repression brings retaliation, and only a cleansing of our whole society can remove this sickness from our soul.

For there is another kind of violence, slower but just as deadly destructive as the shot or the bomb in the night. This is the violence of institutions; indifference and inaction and slow decay. This is the violence that afflicts the poor, that poisons relations between men because their skin has different colors. This is the slow destruction of a child by hunger, and schools without books and homes without heat in the winter.

This is the breaking of a man's spirit by denying him the chance to stand as a father and as a man among other men. And this too afflicts us all.

I have not come here to propose a set of specific remedies nor is there a single set. For a broad and adequate outline we know what must be done. When you teach a man to hate and fear his brother, when you teach that he is a lesser man because of his color or his beliefs or the policies he pursues, when you teach that those who differ from you threaten your freedom or your job or your family, then you also learn to confront others not as fellow citizens but as enemies, to be met not with cooperation but with conquest; to be subjugated and mastered.

We learn, at the last, to look at our brothers as aliens, men with whom we share a city, but not a community; men bound to us in common dwelling, but not in common effort. We learn to share only a common fear, only a common desire to retreat from each other, only a common impulse to meet disagreement with force. For all this, there are no final answers.

Yet we know what we must do. It is to achieve true justice among our fellow citizens. The question is not what programs we should seek to enact. The question is whether we can find in our own midst and in our own hearts that leadership of humane purpose that will recognize the terrible truths of our existence.

We must admit the vanity of our false distinctions among men and learn to find our own advancement in the search for the advancement of others. We must admit in ourselves that our own children's future cannot be built on the misfortunes of others. We must recognize that this short life can neither be ennobled or enriched by hatred or revenge.

Our lives on this planet are too short and the work to be done too great to let this spirit flourish any longer in our land. Of course we cannot vanquish it with a program, nor with a resolution.

But we can perhaps remember, if only for a time, that those who live with us are our brothers, that they share with us the same short moment of life; that they seek, as do we, nothing but the chance to live out their lives in purpose and in happiness, winning what satisfaction and fulfillment they can.

Surely, this bond of common faith, this bond of common goal, can begin to teach us something. Surely, we can learn, at least, to look at those around us as fellow men, and surely we can begin to work a little harder to bind up the wounds among us and to become in our own hearts brothers and countrymen once again.

The American Economy and the American Dream

The American economy has undergone tremendous changes over the past several decades. Presently, we are in an acute phase of a chronic condition that has been festering for years. In the past 18 months, trillions of dollars have gone to Wall Street and the mega-banks, while state and local governments continue to slash their budgets, and millions have lost their jobs. The LAT has a must read piece regarding devastating cuts to public transit and their impact, not in LA, but in Georgia. Clayton County is majority black abutting Atlanta. The bus service is going to be canceled, according to the article:

A large number of suburban working poor may now be stranded: A survey of riders in April 2008 found that 65% of them do not have access to a car. In a survey last month, 3 out of 4 said they may lose their jobs when the buses stopped rolling.

Can you imagine people in the US not having a car, and not having a car living in a suburban area? Why don't they have a car? They can't afford it. Why, isn't a car an essential aspect of the last half of the 20th century American Dream? The article further states:

Since 1995, public transportation use is up 31%, more than twice the U.S. population growth rate, according to the American Public Transportation Assn., the nonprofit that represents the nation's commuter systems. Last year, Americans took 10.2 billion public transit trips.

People didn't increase their public transit use out of environmental concern, no, solely for economic reasons. Two years ago, when gasoline was plus $4 a gallon, and with every wisp of news the economy is strengthening the price heads quickly back, public transit use greatly expanded. Thinking we're going to rebuild the auto-industry at 35 mpg is stupid, whether looked at from an environmental, economic, or war and peace perspective. Cutting public transit is the last thing we should be cutting, we should be doing just the opposite, investing more, yet:

In a survey of 151(public transit) member agencies released Thursday, the association found that about 9 in 10 of them reported flat or decreased local and state funding. Nearly 3 in 5 had already cut service or raised fares.

Understand, when the economy fails tens of millions of people on an essential element like transportation, it is failing grandly. So, when you see all the anger being vented, remember what really underlies it: an American economy that increasingly works for fewer and fewer people. Eldrin Bell, a black Commissioner of Clayton County put it best, "I've lived with racism, But this is a new one -- it's called classism. I've never seen anything like it."

When class becomes permanently entrenched in America, that will truly be the death of the American Dream.