|May the source be with you, but remember the KISS principle ;-)|
|Contents||Bulletin||Scripting in shell and Perl||Network troubleshooting||History||Humor|
|News||Political Economy of Casino Capitalism||Recommended Links||Corruption of Regulators||John Kenneth Galbraith||Hyman Minsky||Recommended Blogs|
|Critique of neoclassical economics||Supply side Lysenkoism||Trickle down economics||Rational expectations scam||Monetarism||Criminal negligence in financial regulation||Financial Sector Induced Systemic Instability|
|Helicopter Ben||Bush||Clinton||Jeffrey Sachs and "shock therapy" racket||Milton Friedman||Phil Gramm||Greenspan: Grey Cardinal of Washington|
|Ronald Reagan: modern prophet of profligacy||Rubinism||Lawrence Summers||Sandy Weill||Martin Feldstein||Financial Humor||Etc|
|Sine ira et studio|
So, of course, are economists, even if the defunct economists are sometimes still alive.
|Speculation and gambling were always a part of Wall Street but since the 1930's
they were just a side-show, now they are the show.
comment to Matt Taibbi article
Conversion from "industrial capitalism" to "casino capitalism" is the natural logic of development of capitalism. So, in a way, replacement of industrial capitalism with financial capitalism was immanent and corruption was contributing but not decisive factor. Also this conversion did not happen due to lack of oversight or as a folly.
It was a reaction on stagnation of industrial production and as such it was nurtured and encouraged by a series of government decisions for the last 50 years. Stagnation of industrial production made expansion of financial sector of paramount importance for the ruling elite and by extension for Congress which represents this elite. House vote 377:4 for Commodity Futures Modernization Act of 2000 is pretty telling in this respect.
There was also two important parallel developments.
"Appetite comes with eating" and banks which initially rise as an alternative to usury gradually became indistinguishable from them. the new usury (vampire squid as Matt Taibbi called GS).
Financial institutions brass became dominant political force displacing (or more correctly complementing) military industrial complex and energy complex...
There was an interesting gallery of figures who made casino capitalism reality. Of them 12 figures looks the most important:
In Bailout Nation (Chapter 19) Barry Ritholtz tried to rank major players that led country into the current abyss:
1. Federal Reserve Chairman Alan Greenspan
2. The Federal Reserve (in its role of setting monetary policy)
3. Senator Phil Gramm
4-6. Moody's Investors Service, Standard & Poor's, and Fitch Ratings (rating agencies)
7. The Securities and Exchange Commission (SEC)
8-9. Mortgage originators and lending banks
11. The Federal Reserve again (in its role as bank regulator)
12. Borrowers and home buyers
13-17. The five biggest Wall Street firms (Bear Stearns, Lehman Brothers, Merrill Lynch,Morgan Stanley, and Goldman Sachs) and their CEOs
18. President George W. Bush
19. President Bill Clinton
20. President Ronald Reagan
21-22. Treasury Secretary Henry Paulson
23-24. Treasury Secretaries Robert Rubin and Lawrence Summers
25. FOMC Chief Ben Bernanke
26. Mortgage brokers
27. Appraisers (the dishonest ones)
28. Collateralized debt obligation (CDO) managers (who produced the junk)
29. Institutional investors (pensions, insurance firms, banks, etc.) for buying the junk
30-31. Office of the Comptroller of the Currency (OCC); Office of Thrift Supervision (OTS)
32. State regulatory agencies
33. Structured investment vehicles (SIVs)/hedge funds for buying the junk
cgoodwood 19 Sep 2015 11:40
Do not contradict the memories of all the old teabaggers who desperately need the myth of Saint Ronnie to justify their Greed is Good declining mentality and years.
When Reagan cut-and-ran on Lebanon he showed rare discretion. A lot of the puffery stuff was B-Movie grade, but there was a lot of cross-the-aisle ventures, too.
He was a politician. The current GOP is just a bunch of white Fundie bullies, actually and metaphorically (e.g., Carson).
Zepp -> thedono 19 Sep 2015 11:37
Well, compared to Cruz, or Santorum, or Huckabee, he's a moderate. Of course, compared to the right people, you can describe Mussolini or Khruschev as moderates...
mastermisanthrope 19 Sep 2015 11:37
LostintheUS -> William J Rood 19 Sep 2015 11:36
Reagan underwent a political conversion when Nancy broke up his marriage with Jane Wyman and married him.
LostintheUS 19 Sep 2015 11:33
Here is the Reagan administration in a five second video clip:
LostintheUS -> inchoateruffian 19 Sep 2015 11:32
Here is the video clip where Don Regan (former CEO of Merrill Lynch) tells PRESIDENT Reagan to "speed it up".
RightSaid -> ID3732233 19 Sep 2015 11:31
The cold war ended while Reagan was president, but he did not win the cold war. His rhetoric and strategy was wishful thinking - there's no way he could have had the definitive intelligence about the entire military-political-economic that would have justified the confidence he projected. He merely lucked out, significantly damaging the US economy by trying (and luckily succeeding) to out-militarize the soviets.
pretzelattack -> kattw 19 Sep 2015 11:31
both clinton and obama have showed a willingness to "reform social security". try naked capitalism, there are probably a number of articles in the archives.
LostintheUS -> piethein 19 Sep 2015 11:29
And that the emergency room federally funded program that saved his life was soon after defunded...by him.
LostintheUS -> pretzelattack 19 Sep 2015 11:28
Many of us saw through him...I noted the senility during his speeches during his first campaign...as did many people I knew.
pretzelattack -> 4Queeen4country 19 Sep 2015 11:27
thatcher said of reagan "bit of a dim bulb..."
Jim Loftus 19 Sep 2015 11:26
Dementia masquerading as politics.
But you can't say anything negative about Saint Ronald!
Peter Davis -> Peter Davis 19 Sep 2015 11:22
I believe Reagan also is responsible for creating the Hollywood notion in American politics and political thinking that life works just like a movie--with good guys and bad guys. And all one needs is a gun and you can save the world. That sort of delusional thinking has been at the heart of the modern GOP ever since.
loljahlol -> ID3732233 19 Sep 2015 11:21
Reagan did not end the Cold War. Brezhnev rule solidified the Soviet death. Their corrupt, inefficient form of capitalism could not compete with the globalization of Western capitalism.
John78745 19 Sep 2015 11:21
There's not much nuance to Reagan. He was a coward, a bully and a loser. He got hundreds of U.S. Marines killed then he ran from the terrorists in Beirut and on the Archille Lauro personally creating the seeds of the morass of terrorists we now live with. He fostered the republican traditions of sending U.S. jobs overseas at the expense of U.S. taxpayers and of invading helpless, hapless nations, a tradition so adeptly followed by Bush I & II. He also promised that there would never be a need for another amnesty.
I guess it's true that he talked mean to the Russians, broke unions, and helped make the military industrial complex into the insatiable war machine that it is today. Remember murderous Iran-Contra (a real) scandal where he and his minions worked in secret without congressional authorization to overthrow a democratically elected government while conspiring to supply arms to the dastardly Iranians!
We could also say that he bravely fought to save the U.S. from socialized medicine and to expunge the tradition of free tuition for California students. Whatta hero!
thankgodimanatheist 19 Sep 2015 11:19
Reagan, the acting President, was the worst President since WWII until the Cheney/Bush debacle.
Most of the problems we face today can be directly traced to his voodoo economics, huge deficit spending, deregulation, and in retrospect disastrous foreign policies.
LostintheUS 19 Sep 2015 11:17
"these days everyone seems to love Ronald."
Absolutely, not true. The farther along we go in time, the more Americans realize the damage this man and his backers did to America and the world. The inversion of the tax tables, the undoing of union laws, the polarization of Americans against each other so the plutocrats had no real opposition and on and on. His camp stole the election in 1980 through making a back door deal with the Iranian government to hold onto the American hostages until the election when Jimmy Carter had negotiated an end to the hostage crisis, which was the undoing of Jimmy Carter's administration.
"Behind Carter's back, the Reagan campaign worked out a deal with the leader of Iran's radical faction - Supreme Leader Ayatollah Khomeini - to keep the hostages in captivity until after the 1980 Presidential election." This is, unquestionably, treason. http://www.truth-out.org/opinion/item/20287-without-reagans-treason-iran-would-not-be-a-problem
No, Reagan marks the downward turn for our country and has resulted in the economic and social mess we still have not clawed our way back out of. No, Reagan is no hero, he is an American nemesis and a traitor. Reagan raised taxes three times while slashing the tax rate of the super rich...starting the downward spiral of the middle-class and the funneling of money toward the 1%. Thus his reputation as a "tax cutter", yeah, if you were a multi-millionaire.
Check this out for a synopsis of the damage: http://www.dailykos.com/story/2011/02/10/942453/-How-Ronald-Reagan-s-Policies-Destroyed-the-United-States#
namora -> nogapsallowed 19 Sep 2015 11:15
Never thought of Reagan as the first Shrub but it fits. I wonder if future pundits will sing the Dub's praises as well. I think I'm gonna be sick for a bit.
kattw -> namora 19 Sep 2015 11:10
Pretzel is maybe talking about the 'strengthen SS' bandwagon? Perhaps? Not entirely sure myself, but yeah - one of the major democrat platform planks is that SS should NOT be privatized, and that if people want to invest in stocks, they can do that on their own. The whole point of SS is to be a mattress full of cash that is NOT vulnerable to the vagaries of the market, and will always have some cash in it to be used as needed.
SS would be totally secure, too, if congress would stop robbing it for other projects, or pay back all they've borrowed. As it is, I wish *I* was as broke as republicans claim SS is - I wouldn't mind having a few billion in the bank.
William J Rood 19 Sep 2015 11:08
Reagan was former president of the Screen Actors' Guild. Obviously, he thought unions for highly educated workers were great. Meatpackers? Not so much.
RealSoothsayer 19 Sep 2015 11:04
This article does not mention the fact that in his last couple of years as President at least, his mental state had seriously deteriorated. He could not remember his own policies, names, etc. CBS' Leslie Stahl should be prosecuted for not being honest with her everyone when she found out.
Peter Davis 19 Sep 2015 11:04
Reagan was a failed president who nonetheless managed to convince people that he was great. He was a professional actor, after all. And he acted his way into the White House. Most importantly, he changed American politics forever by demonstrating that style was more important than substance. In fact, he showed that style was everything and substance utterly unimportant. He was the figurehead while his handlers did the dirty work of Iran-Contra, ballooning deficits, and tanking unemployment.
nishville 19 Sep 2015 11:03
For me, he was a pioneer. He was the first sock-puppet president, starting a noble tradition that reached its climax with W.
mbidding -> hackerkat 19 Sep 2015 11:03
In addition to:
Treasonous traitor when, as a presidential candidate, he negotiated with Khomeini to hold the hostages till after the election.
Subverter of the Constitution via the Iran-Contra scandal.
Destroyer of social cohesion by turning JFK's famous admonishment of "ask not what your country can do for you, ask what you can do for your country" on its head with his meme that all evil emanates from the government and taxation represents stealing rather than a social obligation for any civilized society that wishes to continue to develop in a sound fashion that lifts all boats.
Incarcerator in Chief through his tough on crime and war on drugs policies, not to mention defunding mental health care.
Pisser in Chief through his successful efforts to imbed trickle down economics as the economic thought du jour which even its original architects, notably Stockman, now confirm is a failed theory that we nonetheless cling to to this day.
Ignoramus in Chief by gutting real federal financial aid for higher education leading to the obscene amounts of student debt our college students now incur.
Terrorist creator extraordinaire not only with the creation of the Latin American death squads you note, but the creation, support, trading, and funding of the mujahedin and Bin Laden himself, now known as the Taliban, Al Qa'ida, and ISIS, only the most notable among others.
namora -> trholland1 19 Sep 2015 10:59
That is not taking into account his greatest role for which he was ignored for a much deserved Oscar, Golden Globe or any of the other awards passed out by the entertainment industry, President of The United States of America. He absolutely nailed that one.
William J Rood 19 Sep 2015 10:58
Conservatives used "bracket creep" to convince the middle class that reducing marginal rates on the top tax brackets along with their own would be a good idea, then with the assistance of Democrats replaced the revenue with a huge increase in FICA so that the Social Security Trust Fund could finance the deficit in the rest of the budget. The result was a huge boon to the richest, little difference for the middle class, and a far greater burden for the working poor.
Tax brackets could have been indexed to inflation, but that wouldn't have been so great for Reagans real supporters.
Doueman 19 Sep 2015 10:55
What sad comments by these armchair experts.
They don't gel with my experiences in North America during this period at all. When Reagan ran for the presidency he was generally ridiculed by much of the press in the US and just about all of the press in the UK for being a right wing fanatic, a lightweight, too old, uninformed and even worse an actor. I found this rather curious and watched him specifically on TV in unscripted scenarios to form my own impression as to how such a person, with supposedly limited abilities, could possibly run for President of the US. I get a bit suspicious when organisations and individuals protest and ridicule too much.
My reaction was that he handled himself well and gradually concluded that the mainly Eastern liberal press in the US couldn't really stomach a California actor since they themselves were meant to know everything. He actually was pretty well read ( visitors were later astonished to read his multiple annotations in heavy weight books in his library). He was a clever and astute union negotiator dealing with some of the toughest Hollywood moguls who would eat most negotiators for dinner. He had become Governor of California and had done a fine job. I thought it was unlikely he was the simpleton many portrayed. He couldn't be easily categorised as he embraced many good aspects of the Democrats and the Republicans. Life wasn't so polarised then.
The US had left leaning Republicans and right wing Democrats. A political party as Churchill noted was simply a charger to ride into action.
In my view, his presidential record was pretty remarkable. A charming, fair minded charismatic man without the advantage of a wealthy background or influential family. The world was lucky to have him.
raffine -> particle 19 Sep 2015 10:50
Reagan's second term was a disaster. But as someone below mentioned, conservative pundits and their financers engaged in a campaign to make Reagan into a right-wing FDR. The most effective, albeit bogus, claim on Reagan's behalf was that he had ended the Cold War.
jpsartreny 19 Sep 2015 14:22
Reagan is the shadow governments greatest triumph. After the adolescent Kennedy, egomaniacs Johnson and Nixon , they needed front guys who followed orders instead .
The experiment with the peanut farmer from Georgia provided disastrous to Zebrew Brzezinski and the liberals. The conservatives had better luck with a B- movie actor with an great talent to read of the teleprompter.
RealSoothsayer -> semper12 19 Sep 2015 14:19
How? By talking? Gobachev brought down the USSR with his 'Glasnost' and 'Perestroika' policies. His vision was what communist China later on achieved: mixed economy that flies a red flag. Reagan was just an observer, absolutely nothing more. Tito of Yugoslavia was even more instrumental.
Marc Herlands 19 Sep 2015 14:17
IMHO Reagan was the second most successful president, behind FDR and ahead of LBJ. Not that I liked anything about him, but he moved this country to the right and set the play book. He lowered taxes on the wealthy, the corporations, capital gains, and estate taxes. He reduced growth in programs for the poor, and made it impossible to increase their funding after his presidency because of he left huge federal deficits caused by lowering taxes and increasing outlays on the military. This Republican playbook still is their way of making sure that the Democrats can't give the poor more money after they lose power. Also, he enlarged the program for deregulating industries, doing away with antitrust laws, hindering labor laws, encouraged anti-union behavior, and did nothing for AIDS research. He was a scoundrel who did a deal with Iran to prevent Carter from being re-elected. He directly disobeyed Congressional laws not to intervene in Nicaragua. He set the tone for US interventions after him.
bloggod 19 Sep 2015 14:17
Obama, Clinton, and the Bushes all hope to be forgiven for their unpardonable crimes.
Popularity is created. It is not populism, or informed consent of the pubic as approval for more of the same collusion.
It is a One Party hoe down.
bloggod -> SigmetSue 19 Sep 2015 14:12
the indicted Sec of Defense Weinberger; the indicted head of the CIA Casey who "died" as he was due to testify: Mcfarlane, Abrams, Clair George, Oilyver North, Richard Secord, Albert Hakim
Reagan had no genius, he had Bush-CIA and the Jerry Falwell, Billy Graham, and the "immoral majority" of anti-abortion war profiteers.
Marios Antoniou Lattimore 19 Sep 2015 13:52
I agree with everything you mentioned, and I intensely dislike Reagan YET the point of the article wasn't that Reagan was good, it rather points to the fact that Republicans have shifted so far to the right that Reagan would appear moderate compared to the current batch.
Rainer Jansohn pretzelattack 19 Sep 2015 13:52
Interesting had been his speeches during the Cold War.Scientists have subsumed it under "Social Religion",a special form of political theology.Simple dialectical:UDSSR the incarnation of the evil/hell on the other side USA :the country of God himself.A tradition in USA working until now.There is no separation between government and church as in good old centuries sincetwo centuries resulting from enlightening per Philosophie/Voltaire/Kant/Hume/Descartes and so on.Look at Obamas speeches/God is always mixed in!
talenttruth 19 Sep 2015 13:49
Any conversation about who the fantasy-projection "Reagan" was, misses an important reality: He was a hologram, fabricated by a kaleidoscope of various sorts of so-called "conservative" handlers and puppeteers. It was those "puppeteers" who ranged from heartlessly, stunningly "conservative" (destroya-tive), all the way further right to the kind of militaristic, macho, crackpots who have finally emerged from under their rocks at this year's "candidates."
The fact that Reagan was going ga-ga – definitely in his second term, and likely for part of the first – was entirely convenient for his Non-Human-Based-Crackpot-Right-Holographers, since he had was not actually "driven" to vacuousness by a tragic mental condition (dementia) – THAT change was merely a "short putt" – from his entire previous life.
Regarding his Great Achievement, the collapse of the Soviet Union? After decades of monstrous over-spending by the USA's Military-Industrial-Complex, the bogus and equally insane USSR finally bankrupted itself trying to "compete" and fell. Reagan (and his puppeteer handlers), always excellent at Taking Credit for anything, showed up with exquisite cynical timing, and indeed Took Credit.
Lest anyone forget, Reagan got elected in 1980, via a totally illegal and stunningly immoral "side deal" with the Iranians, in which they agreed to not release our hostages to make Carter look like a feeble old man. Then we got Reagan who WAS a "feeble old man" (ESPECIALLY intellectually and morally). Reagan "won," the hostages were "released" and he of course took credit for that too.
So all these so-called "candidates" ARE the heirs of all the very worst of Ronald Reagan: they are all simpleminded, they are totally beholden to Hidden Sociopathic Billionaires hiding behind various curtains, and they all have NO CLUE what the word "ethics" means. Vacuous, anti-intellectual, scheming, appealing only to morons, and puppets all. Perfect "Reaganites."
Bill Ehrhorn -> semper12 19 Sep 2015 13:32
It seems that the teabaggers and their ilk give only Reagan credit.
SigmetSue 19 Sep 2015 13:16
They called him the Teflon President because nothing ever stuck. It still doesn't. That was his genius -- and I'm no fan.
Lattimore 19 Sep 2015 13:13
The article seems to present Reagan as an theatrical figure. I disagree. Reagan, President of the United States, was a criminal; as such, he was among the most corrupt and anti democratic person to hold the office POTUS. The fact that he tripled the national debt, raised taxes and skewed the tax schedules to benifit the wealthy, are comparitively minor.
Reagan's crimes and anti democratic acts:
1. POTUS: CIA smuggling cocaine into the U.S., passing the drug to wholesalers, who then processed the drug and distributed crack to Black communities. At the same time Reagan's "War on Crime" insured that the Black youth who bought "Central Intelligenc Agencie's" cocaine were criminalized and handed lengthy prison sentences.
2. POTUS supported SOUTH AMERICAN terrorist, and the genocidal atrocities commited by terrorist in Chili, Guatamala, El Mazote, etc.
3. POTUS supported SOUTH AFRICAN apartheid, and the imprisonment of Nelson Mandela as well. Vetoing a bill that would express condemnation of South Africa.
4. POTUS sold Arms to Iran.
5. POTUS used taxpayer dollars to influence election outcomes.
6. POTUS rigged government grants to enrich his cronies.
7. POTUS thew mental patients onto the streets.
8. POTUS supported McCarthyism, witch hunts, etc.
9. POTUS created and supported Islamic terrorist--fore runners of al Queada, ISIS, etc.
Niko2 LostintheUS 19 Sep 2015 13:12
I don't have much love for Nancy, but she did not break up this marriage, to be fair. And she actually got rid off the extreme right wingers in Reagan's administration, like Haig and Regan, whom she called "extra chromosome republicans". Surely she was a vain and greedy flotus with no empathy whatsoever for people not in her Bel Air circles (I can easily imagine her, "Do I really have to go and see these Aids-Babies, I'd rather shop at Rodeo Drive, lose the scheduler") but she realized at an early stage that hubbies shtick-it-to-the-commies policies would do him no favour. Maybe she's the unsung heroine of his presidency.
tommydog -> MtnClimber 19 Sep 2015 13:04
The principle subsidies to big oil are probably the strategic oil reserve and subsidies to low income people for winter heating oil. You can choose which of those you'd like to cut. After that you're arguing about whether exploration costs should be expensed in the year incurred or capitalized and amortized over time.
WilliamK 19 Sep 2015 13:03
He was one of J Edgar Hoover's red baiting fascist admiring boys along with Richard Nixon and Walt Disney used to destroy the labor unions, control the propaganda machine of Hollywood and used to knuckle under the television networks and undermine as much as possible the New Deal polices of Franklin Roosevelt. An actor groomed by the General Electric Corporation and their fellow travelers. "Living better through electricity" was his mantra and he played the role of President to push forward their right wing agenda. Now we are in new stage in our "political development" in America. The era of the "reality television star" with Hollywood in bed with the military industrial complex, selling guns, violence and sex to the fool hardy and their children and prime time television ads push pharmaceutical drugs, children hear warnings of four hour erections, pop-stars flash their tits and asses and a billionaire takes center stage as the media cashes in and goes along for the ride. Yeah Ronnie was a second tier film star and with his little starlet Nancy by his side become one of America's greatest salesman.
Backbutton 19 Sep 2015 12:57
LOL! Reagan was a walking script renderer, with lines written by others, and a phony because he was just acting the part of POTUS. His speeches were all crafted, and he had good writers.
He was no Abraham Lincoln.
And now these morons running for office all want to rub off his "great communicator" fix.
Good help America!
Milwaukee Broad 19 Sep 2015 12:49
Ronald Reagan was an actor whom the depressingly overwhelming majority of American voters thought was a messiah. They so believed in him that they re-elected him to a second term. Nothing positive whatsoever became of his administration, yet he is still worshiped by millions of lost souls (conservatives).
Have a nice day.
Michael Williams 19 Sep 2015 12:48
The US was the world's leading creditor when Reagan took office. The US was the world's leading debtor by the time Bush 1 was tossed out of office.
This is what Republicans cannot seem to remember.
All of the other scandals pale in comparison, even as we deal with the blowback from most of these original, idiotic policies.
Reagan was an actor, mouthing words he barely understood, especially as his dementia progressed.
This is the exact reason the history is so poorly taught in the US.
People might make connections....
Jessica Roth 19 Sep 2015 12:46
Oh, he had holes in his brain long before the dementia. "Facts are stupid things", trees cause pollution, and so on.
A pathetic turncoat who sold out his original party (the one that kept his dad in work throughout the Great Depression via a series of WPA jobs) because Nancy allegedly "gave the best head in Hollywood" and who believed that only 144,000 people were going to Heaven, presumably accounting for his uncaring treatment of the less-well-off.
His administration was full of corruption, from Richard Allen's $1000 in an envelope (and three wristwatches) that he claimed was an inappropriate gift for Mrs. Reagan he had "intercepted" and then "forgotten" to report to William Casey trading over $3,000,000 worth of stocks while CIA director. (Knowing about changes in the oil market ahead of time sure came in handy.) You had an attorney general who took a $50,000 "severance payment" (never done before) from the board of a corporation he resigned from to avoid conflict of interest charges and this was William French Smith; his successor, Edwin Meese, was the one with real scandals (about the sale of his home).
Hell, Reagan himself put his ranch hand (Dennis LeBlanc) on the federal payroll as an "advisor" to the Commerce Department. I didn't know the Commerce Dept needed "advice" on clearing wood from St. Ronnie's ranch, but LeBlanc got a $58,500 salary out of the deal. (Roughly £98,000 at today's prices.) Nice work if you can get it.
Meanwhile, RR "talked tough" at the Soviets (resulting in the world nearly ending in 1983 due to a false alarm about a US nuclear attack) while propping up any rightwing dictator they could find, from the South African racists to Ferdinand and Imelda Marcos (after they had Aquino assassinated at the airport) to Roberto "Death Squad" D'Aubuisson in El Salvador (the man who masterminded the assassination of Archbishop Romero while he was performing Mass).
Oh, and while Carter did a nice job of shooting himself in the foot, Reagan benefited in the election not only from his treasonous dealings with the Iranian hostage-takers (shades of Nixon making a deal with North Viet Nam to stall the peace talks until after the 1968 elections, promising them better terms) but through more pedestrian means such as his campaign's stealing of Carter's briefing book for the campaign's only debate, Reagan being coached for the debate by a supposedly neutral journalist (George Will, of ABC and The Washington Post), who then went on television afterwards (in the days when there were only three commercial channels) and "analysed" how successful Reagan had been in executing his "game plan" and seeming "Presidential" without either Will or ABC bothering to mention that Will had coached Reagan and designed the "game plan" in question. The "liberal bias" in the media, no doubt.
Always a joke, only looking slightly better by the dross that has followed him. (Including Bill "Third Way" Clinton and his over-£50,000,000 in post-Presidential "speaking fees" graft, and Barack Obama, drone-murderer of children in over a dozen countries and serial-summary-executioner of U.S. citizens. When Gordon-effing-Brown is the best that's held office on either side of the Atlantic since 1979, you can see how this planet is in the state it's in.)
pretzelattack DukeofMelbourne 19 Sep 2015 12:45
his stand on russia was inconsistent, and he didn't cause it to collapse. his economic programs were a failure. his foreign policy generally a disaster. he set the blueprint for the current mess.
pretzelattack semper12 19 Sep 2015 12:38
a total crock. reagan let murdering thugs run rampant as long as they paid lip service to democracy, the world over from africa to central america. the ussr watched this coward put 240 marines to die in lebanon, and then cut and run, exactly the pattern he was so ready to condemn as treason in others, and was so ready to portray as showing weakness, and you think the ussr was terrified of him. he was a hollywood actor playing a role, and you bought it.
Tycho1961 19 Sep 2015 12:13
No President exists in a political vacuum. While he was in office, Reagan had a large Democrat majority in the House of Representatives and a small Republican majority in the Senate. The Supreme Court was firmly liberal. Whatever his political agenda Reagan knew he had to constructively engage with people of both parties that were in opposition to him. If he didn't he would suffer the same fate as Carter, marginalized by even his own party. His greatest strength was as a negotiator. Reagan's greatest failures were when he tried to be clever and he and his advisors were found to be rather ham handed about it.
RichardNYC 19 Sep 2015 11:57
The principal legacy of Ronald Reagan is the still prevalent view that corporate interests supersede individual interests.
Harry Haff 19 Sep 2015 11:45
Reagan did many horrible things while in office, committed felonies and supported murderous regimes in Central America that murdered tens of thousands of people with the blessing of the US chief executive. he sold arms to Iran and despoiled the natural environment whenever possible. But given those horrendous accomplishments, he could not now get a seat at the table with the current GOP. He would be considered a RINO, that most stupid and inaccurate term, at best, and a closet liberal somewhere down the line. The current GOP is more to the right than the politicians in the South after the Civil War.
RGC, December 02, 2015 at 06:09 AMLarry Summers and the Subversion of Economics
By Charles Ferguson October 03, 2010
The Obama administration recently announced that Larry Summers is resigning as director of the National Economic Council and will return to Harvard early next year. His imminent departure raises several questions: Who will replace him? What will he do next? But more important, it's a chance to consider the hugely damaging conflicts of interest of the senior academic economists who move among universities, government, and banking.
Summers is unquestionably brilliant, as all who have dealt with him, including myself, quickly realize. And yet rarely has one individual embodied so much of what is wrong with economics, with academe, and indeed with the American economy. For the past two years, I have immersed myself in those worlds in order to make a film, Inside Job, that takes a sweeping look at the financial crisis. And I found Summers everywhere I turned.
Consider: As a rising economist at Harvard and at the World Bank, Summers argued for privatization and deregulation in many domains, including finance. Later, as deputy secretary of the treasury and then treasury secretary in the Clinton administration, he implemented those policies. Summers oversaw passage of the Gramm-Leach-Bliley Act, which repealed Glass-Steagall, permitted the previously illegal merger that created Citigroup, and allowed further consolidation in the financial sector. He also successfully fought attempts by Brooksley Born, chair of the Commodity Futures Trading Commission in the Clinton administration, to regulate the financial derivatives that would cause so much damage in the housing bubble and the 2008 economic crisis. He then oversaw passage of the Commodity Futures Modernization Act, which banned all regulation of derivatives, including exempting them from state antigambling laws.
After Summers left the Clinton administration, his candidacy for president of Harvard was championed by his mentor Robert Rubin, a former CEO of Goldman Sachs, who was his boss and predecessor as treasury secretary. Rubin, after leaving the Treasury Department-where he championed the law that made Citigroup's creation legal-became both vice chairman of Citigroup and a powerful member of Harvard's governing board.
Over the past decade, Summers continued to advocate financial deregulation, both as president of Harvard and as a University Professor after being forced out of the presidency. During this time, Summers became wealthy through consulting and speaking engagements with financial firms. Between 2001 and his entry into the Obama administration, he made more than $20-million from the financial-services industry. (His 2009 federal financial-disclosure form listed his net worth as $17-million to $39-million.)
Summers remained close to Rubin and to Alan Greenspan, a former chairman of the Federal Reserve. When other economists began warning of abuses and systemic risk in the financial system deriving from the environment that Summers, Greenspan, and Rubin had created, Summers mocked and dismissed those warnings. In 2005, at the annual Jackson Hole, Wyo., conference of the world's leading central bankers, the chief economist of the International Monetary Fund, Raghuram Rajan, presented a brilliant paper that constituted the first prominent warning of the coming crisis. Rajan pointed out that the structure of financial-sector compensation, in combination with complex financial products, gave bankers huge cash incentives to take risks with other people's money, while imposing no penalties for any subsequent losses. Rajan warned that this bonus culture rewarded bankers for actions that could destroy their own institutions, or even the entire system, and that this could generate a "full-blown financial crisis" and a "catastrophic meltdown."
When Rajan finished speaking, Summers rose up from the audience and attacked him, calling him a "Luddite," dismissing his concerns, and warning that increased regulation would reduce the productivity of the financial sector. (Ben Bernanke, Tim Geithner, and Alan Greenspan were also in the audience.)
Soon after that, Summers lost his job as president of Harvard after suggesting that women might be innately inferior to men at scientific work. In another part of the same speech, he had used laissez-faire economic theory to argue that discrimination was unlikely to be a major cause of women's underrepresentation in either science or business. After all, he argued, if discrimination existed, then others, seeking a competitive advantage, would have access to a superior work force, causing those who discriminate to fail in the marketplace. It appeared that Summers had denied even the possibility of decades, indeed centuries, of racial, gender, and other discrimination in America and other societies. After the resulting outcry forced him to resign, Summers remained at Harvard as a faculty member, and he accelerated his financial-sector activities, receiving $135,000 for one speech at Goldman Sachs.
Then, after the 2008 financial crisis and its consequent recession, Summers was placed in charge of coordinating U.S. economic policy, deftly marginalizing others who challenged him. Under the stewardship of Summers, Geithner, and Bernanke, the Obama administration adopted policies as favorable toward the financial sector as those of the Clinton and Bush administrations-quite a feat. Never once has Summers publicly apologized or admitted any responsibility for causing the crisis. And now Harvard is welcoming him back.
Summers is unique but not alone. By now we are all familiar with the role of lobbying and campaign contributions, and with the revolving door between industry and government. What few Americans realize is that the revolving door is now a three-way intersection. Summers's career is the result of an extraordinary and underappreciated scandal in American society: the convergence of academic economics, Wall Street, and political power.
Starting in the 1980s, and heavily influenced by laissez-faire economics, the United States began deregulating financial services. Shortly thereafter, America began to experience financial crises for the first time since the Great Depression. The first one arose from the savings-and-loan and junk-bond scandals of the 1980s; then came the dot-com bubble of the late 1990s, the Asian financial crisis; the collapse of Long Term Capital Management, in 1998; Enron; and then the housing bubble, which led to the global financial crisis. Yet through the entire period, the U.S. financial sector grew larger, more powerful, and enormously more profitable. By 2006, financial services accounted for 40 percent of total American corporate profits. In large part, this was because the financial sector was corrupting the political system. But it was also subverting economics.
Over the past 30 years, the economics profession-in economics departments, and in business, public policy, and law schools-has become so compromised by conflicts of interest that it now functions almost as a support group for financial services and other industries whose profits depend heavily on government policy. The route to the 2008 financial crisis, and the economic problems that still plague us, runs straight through the economics discipline. And it's due not just to ideology; it's also about straightforward, old-fashioned money.
Prominent academic economists (and sometimes also professors of law and public policy) are paid by companies and interest groups to testify before Congress, to write papers, to give speeches, to participate in conferences, to serve on boards of directors, to write briefs in regulatory proceedings, to defend companies in antitrust cases, and, of course, to lobby. This is now, literally, a billion-dollar industry. The Law and Economics Consulting Group, started 22 years ago by professors at the University of California at Berkeley (David Teece in the business school, Thomas Jorde in the law school, and the economists Richard Gilbert and Gordon Rausser), is now a $300-million publicly held company. Others specializing in the sale (or rental) of academic expertise include Competition Policy (now Compass Lexecon), started by Richard Gilbert and Daniel Rubinfeld, both of whom served as chief economist of the Justice Department's Antitrust Division in the Clinton administration; the Analysis Group; and Charles River Associates.
In my film you will see many famous economists looking very uncomfortable when confronted with their financial-sector activities; others appear only on archival video, because they declined to be interviewed. You'll hear from:
- Martin Feldstein, a Harvard professor, a major architect of deregulation in the Reagan administration, president for 30 years of the National Bureau of Economic Research, and for 20 years on the boards of directors of both AIG, which paid him more than $6-million, and AIG Financial Products, whose derivatives deals destroyed the company. Feldstein has written several hundred papers, on many subjects; none of them address the dangers of unregulated financial derivatives or financial-industry compensation.
- Glenn Hubbard, chairman of the Council of Economic Advisers in the first George W. Bush administration, dean of Columbia Business School, adviser to many financial firms, on the board of Metropolitan Life ($250,000 per year), and formerly on the board of Capmark, a major commercial mortgage lender, from which he resigned shortly before its bankruptcy, in 2009. In 2004, Hubbard wrote a paper with William C. Dudley, then chief economist of Goldman Sachs, praising securitization and derivatives as improving the stability of both financial markets and the wider economy.
- Frederic Mishkin, a professor at the Columbia Business School, and a member of the Federal Reserve Board from 2006 to 2008. He was paid $124,000 by the Icelandic Chamber of Commerce to write a paper praising its regulatory and banking systems, two years before the Icelandic banks' Ponzi scheme collapsed, causing $100-billion in losses. His 2006 federal financial-disclosure form listed his net worth as $6-million to $17-million.
- Laura Tyson, a professor at Berkeley, director of the National Economic Council in the Clinton administration, and also on the Board of Directors of Morgan Stanley, which pays her $350,000 per year.
- Richard Portes, a professor at London Business School and founding director of the British Centre for Economic Policy Research, paid by the Icelandic Chamber of Commerce to write a report praising Iceland's financial system in 2007, only one year before it collapsed.
- And John Campbell, chairman of Harvard's economics department, who finds it very difficult to explain why conflicts of interest in economics should not concern us.
But could he be right? Are these professors simply being paid to say what they would otherwise say anyway? Unlikely. Mishkin and Portes showed no interest whatever in Iceland until they were paid to do so, and they got it totally wrong. Nor do all these professors seem to make policy statements contrary to the financial interests of their clients. Even more telling, they uniformly oppose disclosure of their financial relationships.
The universities avert their eyes and deliberately don't require faculty members either to disclose their conflicts of interest or to report their outside income. As you can imagine, when Larry Summers was president of Harvard, he didn't work too hard to change this.
Now, however, as the national recovery is faltering, Summers is being eased out while Harvard is welcoming him back. How will the academic world receive him? The simple answer: Better than he deserves.
While making my film, we wrote to the presidents and provosts of Harvard, Columbia, and other universities with detailed questions about their conflict-of-interest policies, requesting interviews about the subject. None of them replied, except to refer us to their Web sites.
Academe, heal thyself.
http://chronicle.com/article/Larry-Summersthe/124790/EMichael said in reply to RGC...Yeah, after an economist has had one job in the government; one job in the banking system; and one teaching job he should be required to stop working as an economist.RGC said in reply to EMichael...I think it is interesting that Summers led the financial deregulation efforts of the Clinton administration and then made a bundle on Wall Street. I think that should be taken into account when evaluating his discussions of economics.EMichael said in reply to RGC...Of course it should.
At the same time this is not taking anything into account, this is about "subverting" economics.
Can you make a case that the only reason Summers made a "bundle" working on Wall Street is because of the financial deregulation efforts he made? Last time I looked he did not have a vote on the legislation.RGC said in reply to EMichael...I think this is especially troubling for the economics profession:
"Over the past 30 years, the economics profession-in economics departments, and in business, public policy, and law schools-has become so compromised by conflicts of interest that it now functions almost as a support group for financial services and other industries whose profits depend heavily on government policy. The route to the 2008 financial crisis, and the economic problems that still plague us, runs straight through the economics discipline. And it's due not just to ideology; it's also about straightforward, old-fashioned money."EMichael said in reply to RGC...Cause no economists actually believed in any of the policies that caused all of those things nor did any economist fail to vote for the policies adopted.RGC said in reply to EMichael...Upton Sinclair:
"It is difficult to get a man to understand something when his salary depends upon his not understanding it."
Tom aka Rusty said in reply to RGC...As Hemingway and F. SCott Fitzgerald exchanged in their writings (the reputed face-to-face conversation may not have happened):
The rich are different.
Yes, they have more money.
Combine elite and rich and you get a toxic combination.
Kevin O'Rourke on the need for economic history:
Why economics needs economic history, by Kevin H O'Rourke: The current economic and financial crisis has given rise to a vigorous debate about the state of economics, and the training which graduate and undergraduates economics students are receiving. Importantly, among those arguing most strongly for a change in the way that young economists are trained are the ultimate employers of these students, in both the private and the public sector. Employers are increasingly complaining that young economists don't understand how the financial system actually works, and are ill-prepared to think about appropriate policies at a time of crisis.
Strikingly, many employers and policymakers are also arguing that knowledge of economic history might be particularly useful.
- Stephen King, Group Chief Economist at HSBC, argues that: "Too few economists newly arriving in the financial world have any real knowledge of events that, while sometimes in the distant past, may have tremendous relevance for current affairs…The global financial crisis can be more easily interpreted and understood by someone who has prior knowledge about the 1929 crash, the Great Depression and, for that matter, the 1907 crash" (Coyle 2012).
- Andrew Haldane, Executive Director for Financial Stability at the Bank of England, has written that "financial history should have caused us to take credit cycles seriously," and that the disappearance of subfields such as economic and financial history, as well as money, banking and finance, from the core curriculum contributed to the neglect of such factors among policymakers, a mistake that "now needs to be corrected" (Coyle 2012, pp).
- In a recent Humanitas Lecture in Oxford, Stan Fischer said that "I think I've learned as much from studying the history of central banking as I have from knowing the theory of central banking and I advise all of you who want to be central bankers to read the history books" (2013).
The benefits of trying to understand economic history
- Knowledge of economic and financial history is crucial in thinking about the economy in several ways.
Most obviously, it forces students to recognise that major discontinuities in economic performance and economic policy regimes have occurred many times in the past, and may therefor occur again in the future. These discontinuities have often coincided with economic and financial crises, which therefore cannot be assumed away as theoretically impossible. A historical training would immunise students from the complacency that characterised the "Great Moderation". Zoom out, and that swan may not seem so black after all.
- A second, related point is that economic history teaches students the importance of context.
As Robert Solow points out, "the proper choice of a model depends on the institutional context" (Solow 1985, p. 329), and this is also true of the proper choice of policies. Furthermore, the 'right' institution may itself depend on context. History is replete with examples of institutions which developed to solve the problems of one era, but which later became problems in their own right.
- Third, economic history is an unapologetically empirical field, exclusively dedicated to understanding the real world.
Doing economic history forces students to add to the technical rigor of their programs an extra dimension of rigor: asking whether their explanations for historical events actually fit the facts or not. Which emphatically does not mean cherry-picking selected facts that fit your thesis and ignoring all the ones that don't: the world is a complicated place, and economists should be trained to recognise this. An exposure to economic history leads to an empirical frame of mind, and a willingness to admit that one's particular theoretical framework may not always work in explaining the real world. These are essential mental habits for young economists wishing to apply their skills in the work environment, and, one hopes, in academia as well.
- Fourth, economic history is a rich source of informal theorising about the real world, which can help motivate more formal theoretical work later on (Wren-Lewis 2013).
Habakkuk (1962) and Abramowitz (1986) are two examples that immediately spring to mind, but there are many others.
- Fifth, even once the current economic and financial crisis has passed, the major long run challenges facing the world will still remain.
Among these is the question of how to rescue billions of our fellow human beings from poverty that would seem intolerable to those of us living in the OECD. And yet such poverty has been the lot of the vast majority of mankind over the vast majority of history: what is surprising is not the fact that 'they are so poor', but the fact that 'we are so rich'. In order to understand the latter puzzle, we have to turn to the historical record. What gave rise to modern economic growth is the question that prompted the birth of economic history in the first place, and it remains as relevant today as it was in the late nineteenth century. Apart from issues such as the rise of Asia and the relative decline of the West, other long run issues that would benefit from being framed in a long-term perspective include global warming, the future of globalisation, and the question of how rapidly we can expect the technological frontier to advance in the decades ahead.
- Sixth, economic theory itself has been emphasising – for well over 20 years now – that path dependence is ubiquitous (David 1985).
- Finally, and perhaps most importantly from the perspective of an undergraduate economics instructor, economic history is a great way of convincing undergraduates that the theory they are learning in their micro and macro classes is useful in helping them make sense of the real world.
Far from being seen as a 'soft' alternative to theory, economic history should be seen as an essential pedagogical complement. There is nothing as satisfying as seeing undergraduates realise that a little bit of simple theory can help them understand complicated real world phenomena. Think of Obstfeld and Taylor's use of the Mundell-Fleming trilemma to frame students' understanding of the history of international capital market integration over the last 150 years; or Ronald Rogowski's use of Heckscher-Ohlin theory to discuss political cleavages the world around in the late nineteenth century; or the Domar thesis, referred to in Temin (2013), which is a great way to talk to students about what drives diminishing returns to labour. Economic history is replete with such opportunities for instructors trying to motivate their students.
Abramovitz, M (1986), "Catching Up, Forging Ahead, and Falling Behind," Journal of Economic History 46, 385-406.
Coyle, D (2012), What's the Use of Economics?: Teaching the Dismal Science After the Crisis, London Publishing Partnership.
David, P A (1985), "Clio and the Economics of QWERTY." The American Economic Review (Papers and Proceedings) 75, 332-37.
Fischer, S (2013), video, quotation begins at 43.48, available online at http://www.youtube.com/watch?v=5Y-ZhFbw2H4.
Habakkuk, H J (1962), American and British Technology in the Nineteenth Century, Cambridge University Press.
Solow, R (1985), "Economic History and Economics," The American Economic Review 75, 328-31
Temin, P (2013), "The Rise and Fall of Economic History at MIT," MIT Department of Economics Working Paper 13-11 (June).
Wren-Lewis, S (2013), "Economic History and Krugman's Crib Sheet".
August 28, 2012
Brilliant...absolutely brilliant piece by Giroux!
"The United States has entered a new historical era marked by a growing disinvestment in the social state, public goods, and civic morality. Matters of politics, power, ideology, governance, economics, and policy now translate unapologetically into a systemic disinvestment in institutions and policies that further the breakdown of those public spheres which traditionally provided the minimal conditions for social justice, dissent, and democratic expression.
Neoliberalism, or what might be called casino capitalism, has become the new normal.
Unabashed in its claim to financial power, self-regulation, and its survival of the fittest value system, neoliberalism not only undercuts the formative culture necessary for producing critical citizens and the public spheres that nourish them, it also facilitates the conditions for producing a bloated defense budget, the prison-industrial complex, environmental degradation, and the emergence of "finance as a criminalized, rogue industry."
It is clear that an emergent authoritarianism haunts a defanged democracy now shaped and structured largely by corporations.
Money dominates politics, the gap between the rich and poor is ballooning, urban spaces are becoming armed camps, militarism is creeping into every facet of public life, and civil liberties are being shredded.
Neoliberalism's policy of competition now dominates policies that define public spheres such as schools, allowing them to stripped of a civic and democratic project and handed over to the logic of the market. Regrettably, it is not democracy, but authoritarianism, that remains on the rise in the United States as we move further into the 21st century.
The 2012 U.S. Presidential Election exists at a pivotal moment in this transformation away from democracy, a moment in which formative cultural and political realms and forces – including the rhetoric used by election candidates – appear saturated with celebrations of war and Social Darwinism.
Accordingly, the possibility of an even more authoritarian and ethically dysfunctional leadership in the White House in 2013 has certainly caught the attention of a number of liberals and other progressives in the United States.
American politics in general and the 2012 election in particular present a challenge to progressives, whose voices in recent years have been increasingly excluded from both the mainstream media and the corridors of political power. Instead, the media have played up the apocalyptic view of the Republican Party's fundamentalist warriors, who seem fixated on translating issues previously seen as non-religious-such as sexual orientation, education, identity, and participation in public life-into the language of a religious revival and militant crusade against evil.
How else to explain Republican Vice-Presidential nominee Paul Ryan's claim that the struggle for the future is a "fight of individualism versus collectivism," with its nod to the McCarthyism and cold war rhetoric of the 1950s.
Or Rick Santorum's assertion that "President Obama is getting America hooked on 'The narcotic of government dependency,'" promoting the view that government has no responsibility to provide safety nets for the poor, disabled, sick, and elderly.
There is more at work here than simply a ramped up version of social Darwinism with its savagely cruel ethic of "reward the rich, penalize the poor, and let everyone fend for themselves," there is also a full scale attack on the social contract, the welfare state, economic equality, and any viable vestige of moral and social responsibility.
The Romney-Ryan appropriation of Ayn Rand's ode to selfishness and self-interest is of particular importance because it offers a glimpse of a ruthless form of extreme capitalism in which the poor are considered "moochers," viewed with contempt, and singled out to be punished.
But this theocratic economic fundamentalist ideology does more. It destroys any viable notion of the and civic virtue in which the social contract and common good provide the basis for creating meaningful social bonds and instilling in citizens a sense of social and civic responsibility.
The idea of public service is viewed with disdain just as the work of individuals, social groups, and institutions that benefit the citizenry at large are held in contempt.
As George Lakoff and Glenn W. Smith point out, casino capitalism creates a culture of cruelty:
"its horrific effects on individuals-death, illness, suffering, greater poverty, and loss of opportunity, productive lives, and money."
But it does more by crushing any viable notion of the common good and public life by destroying "the bonds that hold us together."
Under casino capitalism, the spaces, institutions, and values that constitute the public are now surrendered to powerful financial forces and viewed simply as another market to be commodified, privatized and surrendered to the demands of capital.
With religious and market-driven zealots in charge, politics becomes an extension of war; greed and self-interest trump any concern for the well-being of others; reason is trumped by emotions rooted in absolutist certainty and militaristic aggression; and skepticism and dissent are viewed as the work of Satan.
If the Republican candidacy race of 2012 is any indication, then political discourse in the United States has not only moved to the right-it has been introducing totalitarian values and ideals into the mainstream of public life.
Religious fanaticism, consumer culture, and the warfare state work in tandem with neoliberal economic forces to encourage privatization, corporate tax breaks, growing income and wealth inequality, and the further merging of the financial and military spheres in ways that diminish the authority and power of democratic governance.
Neoliberal interests in freeing markets from social constraints, fueling competitiveness, destroying education systems, producing atomized subjects, and loosening individuals from any sense of social responsibility prepare the populace for a slow embrace of social Darwinism, state terrorism, and the mentality of war-not least of all by destroying communal bonds, dehumanizing the other, and pitting individuals against the communities they inhabit.
Totalitarian temptations now saturate the media and larger culture in the language of austerity as political and economic orthodoxy.
What we are witnessing in the United States is the normalization of a politics that exterminates not only the welfare state, and the truth, but all those others who bear the sins of the Enlightenment-that is, those who refuse a life free from doubt.
Reason and freedom have become enemies not merely to be mocked, but to be destroyed.
And this is a war whose totalitarian tendencies are evident in the assault on science, immigrants, women, the elderly, the poor, people of color, and youth.
What too often goes unsaid, particularly with the media's focus on inflammatory rhetoric, is that those who dominate politics and policymaking, whether Democrats or Republicans, do so largely because of their disproportionate control of the nation's income and wealth.
Increasingly, it appears these political elite choose to act in ways that sustain their dominance through the systemic reproduction of an iniquitous social order. In other words, big money and corporate power rule while electoral politics are
The secrecy of the voting booth becomes the ultimate expression of democracy, reducing politics to an individualized purchase-a crude form of economic action.
Any form of politics willing to invest in such ritualistic pageantry only adds to the current dysfunctional nature of our social order, while reinforcing a profound failure of political imagination."
The issue should no longer be how to work within the current electoral system, but how to dismantle it and construct a new political landscape that is capable of making a claim on equity, justice, and democracy for all of its inhabitants.
Obama's once inspiring call for hope has degenerated into a flight from responsibility.
The Obama administration has worked to extend the policies of the George W. Bush administration by legitimating a range of foreign and domestic policies that have shredded civil liberties, expanded the permanent warfare state, and increased the domestic reach of the punitive surveillance state.
And if Romney and his ideological cohorts, now viewed as the most extremists faction of the Republican Party, come to power, surely the existing totalitarian and anti-democratic tendencies at work in the United States will be dangerously intensified.
A catalogue of indicting evidence reveals the depth and breadth of the war being waged against the social state, and particularly against young people. Beyond exposing the moral depravity of a nation that fails to protect its young, such a war speaks to nothing less than a perverse death-wish, a barely masked desire for self-annihilation-as the wilful destruction of an entire generation not only transforms U.S. politics into pathology, but is sure to signal the death-knell for America's future.
How much longer will the American public have to wait before the nightmare comes to an end?
An awareness of the material and cultural elements that have produced these deeply anti-democratic conditions is important; however it is simply not enough.
The collective response here must include a refusal to enter the current political discourse of compromise and accommodation-to think well beyond the discourse of facile concessions and to conduct struggles on the mutually informed terrains of civic literacy, education, and power.
A rejection of traditional forms of political mobilization must be accompanied by a new political discourse, one that uncovers the hidden practices of neoliberal domination while developing rigorous models for critical reflection and fresh forms of intellectual and social engagement.
Yet, the current historical moment seems at an utter loss to create a massive social movement capable of addressing the totalitarian nature and social costs of a religious and political fundamentalism that is merging with an extreme market-fundamentalism.
In this case, a fundamentalism whose idea of freedom extends no further than personal financial gain and endless consumption.
Under such circumstances, progressives should focus their energies on working with the Occupy movement and other social movements to develop a new language of radical reform and to create new public spheres that will make possible the modes of critical thought and engaged agency that are the very foundations of a truly participatory and radical democracy.
Such a project must work to develop vigorous educational programs, modes of public communication, and communities that promote a culture of deliberation, public debate, and critical exchange across a wide variety of cultural and institutional sites.
Ultimately, it must focus on the end goal of generating those formative cultures and public spheres that are the preconditions for political engagement and vital for energizing democratic movements for social change-movements willing to think beyond the limits of a savage global capitalism.
Pedagogy in this sense becomes central to any substantive notion of politics and must be viewed as a crucial element of organized resistance and collective struggles.
The deep regressive elements of neoliberalism constitute both a pedagogical practice and a legitimating function for a deeply oppressive social order. Pedagogical relations that make the power relations of casino capitalism disappear must be uncovered and challenged.
Under such circumstances, politics becomes transformative rather than accommodating and aims at abolishing a capitalist system marked by massive economic, social, and cultural inequalities.
A politics that uncovers the harsh realities imposed by casino capitalism should also work towards establishing a society in which matters of justice, equality, and freedom are understood as the crucial foundation of a substantive democracy.
Rather than invest in electoral politics, it would be more worthwhile for progressives to develop formative conditions that make a real democracy possible.
As Angela Davis has suggested, this means engaging "in difficult coalition-building processes, negotiating the recognition for which communities and issues inevitably strive [and coming] together in a unity that is not simplistic and oppressive, but complex and emancipatory, recognizing, in June Jordan's words that 'we are the ones we have been waiting for.'
Developing a broad-based social movement means finding a common ground upon which challenging diverse forms of oppression, exploitation, and exclusion can become part of a wider effort to create a radical democracy.
In part, this means reclaiming a discourse of ethics and morality, elaborating a new model of democratic politics, and developing fresh analytical concepts for understanding and engaging the concept of the social.
One avenue for developing a critical and transformative politics might take a cue from youth protesters the world over and develop new ways to challenge the corporate values that shape American, and increasingly global, politics. It is especially crucial to provide alternative values that challenge market-driven ideologies that equate freedom with radical individualism, self-interest, hyper-competitiveness, privatization, and deregulation, while undermining democratic social bonds, the public good, and the welfare state.
Such actions can be further addressed by recruiting young people, teachers, labor activists, religious leaders, and other engaged citizens to become public intellectuals who are willing to use their skills and knowledge to make visible how power works and to address important social and political issues.
Of course, the American public needs to do more than talk. It also needs to bring together educators, students, workers, and anyone else interested in real democracy in order to create a social movement–a well-organized movement capable of changing the power relations and vast economic inequalities that have created the conditions for symbolic and systemic violence in American society.
Addressing such challenges suggests that progressives will invariably need to take on the role of educational activists.
One option would be to create micro-spheres of public education that further modes of critical learning and civic agency, and thus enable young people and others to learn how to govern rather than be governed.
This could be accomplished through a network of free educational spaces developed among diverse faith communities and public schools, as well as in secular and religious organizations affiliated with higher educational institutions.
These new educational spaces focused on cultivating both dialogue and action in the public interest can look to past models in those institutions developed by socialists, labor unions, and civil rights activists in the early twentieth century and later in the 1950s and 60s.
Such schools represented oppositional public spheres and functioned a democratic public spheres in the best educational sense and ranged from the early networks of radical Sunday schools to the later Brookwood Labor College and Highlander Folk School in Tennessee.
Stanley Aronowitz rightly insists that the current "system survives on the eclipse of the radical imagination, the absence of a viable political opposition with roots in the general population, and the conformity of its intellectuals who, to a large extent, are subjugated by their secure berths in the academy; less secure private sector corporate jobs, and centrist and center-left media institutions."
At a time when critical thought has been flattened, it becomes imperative to develop a discourse of critique and possibility-one that recognizes that without an informed citizenry, collective struggle, and dynamic social movements, hope for a viable democratic future will slip out of reach.
By Henry A. Giroux
Complete story at:
For anyone that's read to the bottom and understood what Giroux has said, congratulations in now being where we need to start. Brilliant work and I agree completely.
All capitalism is not good for our country- especially Rentier Capitalism where nothing is produced and the rich live off the suffering of the poor. These types of capitalists create nothing, they do nothing to benefit society. They are parasitic in their relationship with our community.
Looking for a solution to the current economic crisis? Read up on your Minsky
The United States has since the early 1990s undergone a piecemeal but profound social and economic transformation: casinos, nearly prohibited nationwide in 1910, are now legal in some form in 40 states, including 24 with legalized commercial operations. The companies involved make a tidy profit: Of the $34.6 billion in revenue (and again, this figure is in addition to the $26.7 billion generated at the nation's 448 tribal casinos), casinos paid just $7.59 billion in taxes and $13.3 billion in wages and benefits.
Dave Eggers' gem of a book, "A Hologram for the King," is a parable about the decadence, fragility and heartlessness of late, decayed corporate capitalism. It is about the small, largely colorless men and women who serve as managers in our suicidal outsourcing of manufacturing jobs and the methodical breaking of labor unions. It is about the lie of globalization, a lie that impoverishes us all to increase corporate profits.
"A Hologram for the King" tells the story of Alan, a lackluster 54-year-old consultant who is desperately trying to snag one final big contract in Saudi Arabia for Reliant, a corporation that is "the largest I.T. supplier in the world," to save himself from financial ruin. Alan has come to realize that managers like him who made outsourcing possible will be discarded as human refuse now that the process is complete, left to wander like ghosts-or holograms-among the ruins. And Eggers' novel is a subtle, deft and poignant look at the horrendous toll this corporate process takes on self-esteem, on family, on health, on community and finally on the nation itself. It does so, like parables from Greek tragedy or George Orwell, by finding the perfect story to make a point that is universal.
The United States has entered a new historical era marked by a growing disinvestment in the social state, public goods, and civic morality. Matters of politics, power, ideology, governance, economics, and policy now translate unapologetically into a systemic disinvestment in institutions and policies that further the breakdown of those public spheres which traditionally provided the minimal conditions for social justice, dissent, and democratic expression. Neoliberalism, or what might be called casino capitalism, has become the new normal. Unabashed in its claim to financial power, self-regulation, and its survival of the fittest value system, neoliberalism not only undercuts the formative culture necessary for producing critical citizens and the public spheres that nourish them, it also facilitates the conditions for producing a bloated defense budget, the prison-industrial complex, environmental degradation, and the emergence of "finance as a criminalized, rogue industry."[i]
It is clear that an emergent authoritarianism haunts a defanged democracy now shaped and structured largely by corporations. Money dominates politics, the gap between the rich and poor is ballooning, urban spaces are becoming armed camps, militarism is creeping into every facet of public life, and civil liberties are being shredded. Neoliberalism's policy of competition now dominates policies that define public spheres such as schools, allowing them to stripped of a civic and democratic project and handed over to the logic of the market. Regrettably, it is not democracy, but authoritarianism, that remains on the rise in the United States as we move further into the 21st century.
The 2012 U.S. Presidential Election exists at a pivotal moment in this transformation away from democracy, a moment in which formative cultural and political realms and forces – including the rhetoric used by election candidates – appear saturated with celebrations of war and Social Darwinism. Accordingly, the possibility of an even more authoritarian and ethically dysfunctional leadership in the White House in 2013 has certainly caught the attention of a number of liberals and other progressives in the United States. American politics in general and the 2012 election in particular present a challenge to progressives, whose voices in recent years have been increasingly excluded from both the mainstream media and the corridors of political power. Instead, the media have played up the apocalyptic view of the Republican Party's fundamentalist warriors, who seem fixated on translating issues previously seen as non-religious-such as sexual orientation, education, identity, and participation in public life-into the language of a religious revival and militant crusade against evil.
How else to explain Republican Vice-Presidential nominee Paul Ryan's claim that the struggle for the future is a "fight of individualism versus collectivism," with its nod to the McCarthyism and cold war rhetoric of the 1950s. Or Rick Santorum's assertion that "President Obama is getting America hooked on 'The narcotic of government dependency,'" promoting the view that government has no responsibility to provide safety nets for the poor, disabled, sick, and elderly. There is more at work here than simply a ramped up version of social Darwinism with its savagely cruel ethic of "reward the rich, penalize the poor, [and] let everyone fend for themselves," [ii] there is also a full scale attack on the social contract, the welfare state, economic equality, and any viable vestige of moral and social responsibility. The Romney-Ryan appropriation of Ayn Rand's ode to selfishness and self-interest is of particular importance because it offers a glimpse of a ruthless form of extreme capitalism in which the poor are considered "moochers," viewed with contempt, and singled out to be punished. But this theocratic economic fundamentalist ideology does more. It destroys any viable notion of the and civic virtue in which the social contract and common good provide the basis for creating meaningful social bonds and instilling in citizens a sense of social and civic responsibility. The idea of public service is viewed with disdain just as the work of individuals, social groups, and institutions that benefit the citizenry at large are held in contempt. As George Lakoff and Glenn W. Smith point out, casino capitalism creates a culture of cruelty: "its horrific effects on individuals-death, illness, suffering, greater poverty, and loss of opportunity, productive lives, and money."[iii] But it does more by crushing any viable notion of the common good and public life by destroying "the bonds that hold us together."[iv] Under casino capitalism, the spaces, institutions, and values that constitute the public are now surrendered to powerful financial forces and viewed simply as another market to be commodified, privatized and surrendered to the demands of capital. With religious and market-driven zealots in charge, politics becomes an extension of war; greed and self-interest trump any concern for the well-being of others; reason is trumped by emotions rooted in absolutist certainty and militaristic aggression; and skepticism and dissent are viewed as the work of Satan.
If the Republican candidacy race of 2012 is any indication, then political discourse in the United States has not only moved to the right-it has been introducing totalitarian values and ideals into the mainstream of public life. Religious fanaticism, consumer culture, and the warfare state work in tandem with neoliberal economic forces to encourage privatization, corporate tax breaks, growing income and wealth inequality, and the further merging of the financial and military spheres in ways that diminish the authority and power of democratic governance.[v] Neoliberal interests in freeing markets from social constraints, fueling competitiveness, destroying education systems, producing atomized subjects, and loosening individuals from any sense of social responsibility prepare the populace for a slow embrace of social Darwinism, state terrorism, and the mentality of war-not least of all by destroying communal bonds, dehumanizing the other, and pitting individuals against the communities they inhabit.
Totalitarian temptations now saturate the media and larger culture in the language of austerity as political and economic orthodoxy. What we are witnessing in the United States is the normalization of a politics that exterminates not only the welfare state, and the truth, but all those others who bear the sins of the Enlightenment-that is, those who refuse a life free from doubt. Reason and freedom have become enemies not merely to be mocked, but to be destroyed. And this is a war whose totalitarian tendencies are evident in the assault on science, immigrants, women, the elderly, the poor, people of color, and youth. What too often goes unsaid, particularly with the media's focus on inflammatory rhetoric, is that those who dominate politics and policymaking, whether Democrats or Republicans, do so largely because of their disproportionate control of the nation's income and wealth. Increasingly, it appears these political elite choose to act in ways that sustain their dominance through the systemic reproduction of an iniquitous social order. In other words, big money and corporate power rule while electoral politics are rigged. The secrecy of the voting booth becomes the ultimate expression of democracy, reducing politics to an individualized purchase-a crude form of economic action. Any form of politics willing to invest in such ritualistic pageantry only adds to the current dysfunctional nature of our social order, while reinforcing a profound failure of political imagination. The issue should no longer be how to work within the current electoral system, but how to dismantle it and construct a new political landscape that is capable of making a claim on equity, justice, and democracy for all of its inhabitants. Obama's once inspiring call for hope has degenerated into a flight from responsibility. The Obama administration has worked to extend the policies of the George W. Bush administration by legitimating a range of foreign and domestic policies that have shredded civil liberties, expanded the permanent warfare state, and increased the domestic reach of the punitive surveillance state. And if Romney and his ideological cohorts, now viewed as the most extremists faction of the Republican Party, come to power, surely the existing totalitarian and anti-democratic tendencies at work in the United States will be dangerously intensified.
A catalogue of indicting evidence reveals the depth and breadth of the war being waged against the social state, and particularly against young people. Beyond exposing the moral depravity of a nation that fails to protect its young, such a war speaks to nothing less than a perverse death-wish, a barely masked desire for self-annihilation-as the wilful destruction of an entire generation not only transforms U.S. politics into pathology, but is sure to signal the death-knell for America's future. How much longer will the American public have to wait before the nightmare comes to an end?
An awareness of the material and cultural elements that have produced these deeply anti-democratic conditions is important; however it is simply not enough. The collective response here must include a refusal to enter the current political discourse of compromise and accommodation-to think well beyond the discourse of facile concessions and to conduct struggles on the mutually informed terrains of civic literacy, education, and power. A rejection of traditional forms of political mobilization must be accompanied by a new political discourse, one that uncovers the hidden practices of neoliberal domination while developing rigorous models for critical reflection and fresh forms of intellectual and social engagement.
Yet, the current historical moment seems at an utter loss to create a massive social movement capable of addressing the totalitarian nature and social costs of a religious and political fundamentalism that is merging with an extreme market-fundamentalism. In this case, a fundamentalism whose idea of freedom extends no further than personal financial gain and endless consumption. Under such circumstances, progressives should focus their energies on working with the Occupy movement and other social movements to develop a new language of radical reform and to create new public spheres that will make possible the modes of critical thought and engaged agency that are the very foundations of a truly participatory and radical democracy. Such a project must work to develop vigorous educational programs, modes of public communication, and communities that promote a culture of deliberation, public debate, and critical exchange across a wide variety of cultural and institutional sites. Ultimately, it must focus on the end goal of generating those formative cultures and public spheres that are the preconditions for political engagement and vital for energizing democratic movements for social change-movements willing to think beyond the limits of a savage global capitalism. Pedagogy in this sense becomes central to any substantive notion of politics and must be viewed as a crucial element of organized resistance and collective struggles. The deep regressive elements of neoliberalism constitute both a pedagogical practice and a legitimating function for a deeply oppressive social order. Pedagogical relations that make the power relations of casino capitalism disappear must be uncovered and challenged. Under such circumstances, politics becomes transformative rather than accommodating and aims at abolishing a capitalist system marked by massive economic, social, and cultural inequalities. A politics that uncovers the harsh realities imposed by casino capitalism should also work towards establishing a society in which matters of justice, equality, and freedom are understood as the crucial foundation of a substantive democracy.
Rather than invest in electoral politics, it would be more worthwhile for progressives to develop formative conditions that make a real democracy possible. As Angela Davis has suggested, this means engaging "in difficult coalition-building processes, negotiating the recognition for which communities and issues inevitably strive [and coming] together in a unity that is not simplistic and oppressive, but complex and emancipatory, recognising, in June Jordan's words that 'we are the ones we have been waiting for.'"[vi] Developing a broad-based social movement means finding a common ground upon which challenging diverse forms of oppression, exploitation, and exclusion can become part of a wider effort to create a radical democracy.
In part, this means reclaiming a discourse of ethics and morality, elaborating a new model of democratic politics, and developing fresh analytical concepts for understanding and engaging the concept of the social. One avenue for developing a critical and transformative politics might take a cue from youth protesters the world over and develop new ways to challenge the corporate values that shape American, and increasingly global, politics. It is especially crucial to provide alternative values that challenge market-driven ideologies that equate freedom with radical individualism, self-interest, hyper-competitiveness, privatization, and deregulation, while undermining democratic social bonds, the public good, and the welfare state. Such actions can be further addressed by recruiting young people, teachers, labor activists, religious leaders, and other engaged citizens to become public intellectuals who are willing to use their skills and knowledge to make visible how power works and to address important social and political issues. Of course, the American public needs to do more than talk. It also needs to bring together educators, students, workers, and anyone else interested in real democracy in order to create a social movement–a well-organized movement capable of changing the power relations and vast economic inequalities that have created the conditions for symbolic and systemic violence in American society.
Addressing such challenges suggests that progressives will invariably need to take on the role of educational activists. One option would be to create micro-spheres of public education that further modes of critical learning and civic agency, and thus enable young people and others to learn how to govern rather than be governed. This could be accomplished through a network of free educational spaces developed among diverse faith communities and public schools, as well as in secular and religious organizations affiliated with higher educational institutions. These new educational spaces focused on cultivating both dialogue and action in the public interest can look to past models in those institutions developed by socialists, labor unions, and civil rights activists in the early twentieth century and later in the 1950s and 60s. Such schools represented oppositional public spheres and functioned a democratic public spheres in the best educational sense and ranged from the early networks of radical Sunday schools to the later Brookwood Labor College and Highlander Folk School in Tennessee. Stanley Aronowitz rightly insists that the current "system survives on the eclipse of the radical imagination, the absence of a viable political opposition with roots in the general population, and the conformity of its intellectuals who, to a large extent, are subjugated by their secure berths in the academy; less secure private sector corporate jobs, and centrist and center-left media institutions."[vii] At a time when critical thought has been flattened, it becomes imperative to develop a discourse of critique and possibility-one that recognizes that without an informed citizenry, collective struggle, and dynamic social movements, hope for a viable democratic future will slip out of reach.Henry A. Giroux holds the Global TV Network chair in English and Cultural Studies at McMaster University in Canada. His most recent books include: "Take Back Higher Education" (co-authored with Susan Searls Giroux, 2006), "The University in Chains: Confronting the Military-Industrial-Academic Complex" (2007) and "Against the Terror of Neoliberalism: Politics Beyond the Age of Greed" (2008). His latest book is Twilight of the Social: Resurgent Publics in the Age of Disposability," (Paradigm.)
August 16, 2012 | The Nation
Mitt Romney, above all else, epitomizes the deep inequality in our society. In this episode of Nation Conversations, former Secretary of Labor Robert Reich explains to Managing Editor Roane Carey how Romney's casino capitalism used tax benefits to not only enrich himself and his fellow CEOs, but bankrupted the country while they were at it. Read Mitt Romney and the New Gilded Age, in which Reich describes why Romney reflects the deep structural crisis we currently face, in this week's double issue.
Mitt Romney touts his business acumen and job-creation record as a key qualification for being the next U.S. president.
What's clear from a review of the public record during his management of the private-equity firm Bain Capital from 1985 to 1999 is that Romney was fabulously successful in generating high returns for its investors. He did so, in large part, through heavy use of tax-deductible debt, usually to finance outsized dividends for the firm's partners and investors. When some of the investments went bad, workers and creditors felt most of the pain. Romney privatized the gains and socialized the losses.
What's less clear is how his skills are relevant to the job of overseeing the U.S. economy, strengthening competitiveness and looking out for the welfare of the general public, especially the middle class.
Thanks to leverage, 10 of roughly 67 major deals by Bain Capital during Romney's watch produced about 70 percent of the firm's profits. Four of those 10 deals, as well as others, later wound up in bankruptcy. It's worth examining some of them to understand Romney's investment style at Bain Capital.
In 1986, in one of its earliest deals, Bain Capital acquired Accuride Corp., a manufacturer of aluminum truck wheels. The purchase was 97.5 percent financed by debt, a high level of leverage under any circumstances. It was especially burdensome for a company that was exposed to aluminum-price volatility and cyclical automotive production.Casino Capitalism
Forty-to-one leverage is casino capitalism that hugely magnifies gains and losses. Bain Capital wisely chose to flip the company fast: After 18 months, it sold Accuride, converting its $2.6 million sliver of equity into a $61 million capital gain. That deal, which yielded a 1,123 percent annualized return, was critical to Bain Capital's early success and led the firm to keep maximizing the use of leverage.
In 1992, Bain Capital bought American Pad & Paper by financing 87 percent of the purchase price. In the next three years, Ampad borrowed to make acquisitions, repay existing debt and pay Bain Capital and its investors $60 million in dividends.
As a result, the company's debt swelled from $11 million in 1993 to $444 million by 1995. The $14 million in annual interest expense on this debt dwarfed the company's $4.7 million operating cash flow. The proceeds of an initial public offering in July 1996 were used to pay Bain Capital $48 million for part of its stake and to reduce the company's debt to $270 million.
From 1993 to 1999, Bain Capital charged Ampad about $18 million in various fees. By 1999, the company's debt was back up to $400 million. Unable to pay the interest costs and drained of cash paid to Bain Capital in fees and dividends, Ampad filed for bankruptcy the following year. Senior secured lenders got less than 50 cents on the dollar, unsecured lenders received two- tenths of a cent on the dollar, and several hundred jobs were lost. Bain Capital had reaped capital gains of $107 million on its $5.1 million investment.
Bain Capital's acquisition in 1994 of Dade International, a supplier of in-vitro diagnostic products, was 81 percent financed by debt. Of the $85 million in equity, about $27 million came from Bain with the rest coming from a group of investors that included Goldman Sachs Group Inc.
From 1995 to 1999, Bain Capital tripled Dade's debt from about $300 million to $902 million. Some of the debt was used to pay for acquisitions of DuPont Co.'s in-vitro diagnostics division in May 1996 and Behring Diagnostics, a German medical- testing company, in 1997. But some was used to finance a repurchase of half of Bain Capital's equity for $242 million -- more than eight times its investment -- and to pay its investors almost $100 million in fees.Bankruptcy Filing
Dade was left in a weakened financial condition and couldn't withstand the shocks of increased debt payments when interest rates rose and revenue from Europe fell because of a decline in the value of the euro. The company filed for bankruptcy in August 2002, because of its inability to service a $1.5 billion debt load. About 1,700 people lost their jobs while Bain Capital claimed capital gains (net of its losses in the bankruptcy) of roughly $216 million, an eightfold return.
There are many other examples of this debt-fueled strategy. In the two years following the acquisition in 1993 of GS Industries, a steel mill, for $8 million, Bain Capital increased the company's debt to $378 million on operating income of less than a 10th of that amount. Some of this was used to pay Bain Capital a $36 million dividend in 1994. That degree of leverage was excessive in light of the cyclicality and capital-intensive nature of the steel industry.
By the time the company went bankrupt in 2001, it owed $554 million in debt against assets valued at $395 million. Many creditors lost money, and 750 workers lost their jobs. The U.S. Pension Benefit Guaranty Corp., which insures company retirement plans, determined in 2002 that GS had underfunded its pension by $44 million and had to step in to cover the shortfall.
Bain Capital's acquisition of Stage Stores, a department- store chain, in 1988 was 96 percent financed by debt (mostly in junk bonds) -- an extreme level for a cyclical and very competitive low-margin business. Bain sold a large part of its stake in 1997 for a $184 million gain, three years before the company filed for bankruptcy because of its inability to service its $600 million debt.
Success, entrepreneurship, risk taking and wealth creation deserve to be celebrated when they are the result of fair play and hard work. President Barack Obama is correct in distinguishing the patient creation of value for the benefit of investors through genuine operational improvements and growth -- the true mission of private equity -- from the form of rigged capitalism that was practiced by some in the industry in the past when debt was cheap and plentiful.
While Bain Capital wasn't alone in using financial engineering to turbo-charge its returns, it was among the most aggressive under Romney's leadership. Enriching investors by taking leveraged bets isn't a qualification for a job requiring long-term vision and concern for public welfare. It is appropriate to point that out to voters.
(Anthony Luzzatto Gardner works at Palamon Capital Partners, a private equity fund based in London, and was director of European affairs in the U.S. National Security Council in 1994-95. The opinions expressed are his own.)
Read more opinion online from Bloomberg View. Subscribe to receive a daily e-mail highlighting new View editorials, columns and op-ed articles.
Today's highlights: the editors on good news from Guantanamo, why Jamie Dimon's bonus should be clawed back and how to put more electric cars on the road; William D. Cohan on Romney's magical IRA; Albert R. Hunt on the candidates' need to spell out debt-cutting plans; Stephen Marche explains why Canadians are now richer than Americans.
Robert Reich is pleased to see the Justice Department crackdown on "Big Pharma," but doesn't think think the government is doing anywhere near enough to solve the problem:How Not to Get Big Pharma to Change Its Ways, by Robert Reich: Earlier this week the Justice Department announced a $3 billion settlement of criminal and civil charges against pharma giant GlaxoSmithKline - the largest pharmaceutical settlement in history - for improper marketing prescription drugs in the late 1990s to the mid-2000s.The charges are deadly serious. Among other things, Glaxo was charged with promoting to kids under 18 an antidepressant approved only for adults; pushing two other antidepressants for unapproved purposes,... and, to further boost sales of prescription drugs, showering doctors with gifts, consulting contracts, speaking fees, even tickets to sporting events.$3 billion may sound like a lot of money, but during these years Glaxo made $27.5 billion on these three antidepressants alone,... so the penalty could almost be considered a cost of doing business.Besides, to the extent the penalty affects Glaxo's profits and its share price, the wrong people will be feeling the financial pain. ... Not a single executive has been charged - even though some charges against the company are criminal. ...The Glaxo case is the latest and biggest in a series of Justice Department prosecutions of Big Pharma for illegal marketing prescription drugs. ... The Department says the prosecutions are well worth the effort. By one estimate it's recovered more than $15 for every $1 it's spent.But what's the point if the fines are small relative to the profits, if the wrong people are feeling the financial pinch, and if no executive is held accountable?The only way to get big companies like these to change their behavior is to make the individuals responsible feel the heat.An even more basic issue is why the advertising and marketing of prescription drugs is allowed at all, when consumers can't buy them and shouldn't be influencing doctor's decisions anyway. Before 1997, the Food and Drug Administration banned such advertising on TV and radio. That ban should be resurrected.Finally, there's no good reason why doctors should be allowed to accept any perks at all from [drug] companies... It's an inherent conflict of interest. Codes of ethics that are supposed to limit such gifts obviously don't work. All perks should be banned, and doctors that accept them should be subject to potential loss of their license to practice.
Simon Johnson, summarizing Dennis Kelleher of the blog Better Markets, says banks have the same problem:... Global megabanks have an incentive to deceive customers, including both individuals and nonfinancial corporations. Their size confers both market power and the political power needed to conceal the extent to which they engage in economic fraud. The lack of transparency in derivatives markets provides them with an opportunity to cheat, but the abuses are much wider – as the Libor scandal demonstrates. The ripoff is not just of retail investors. ...
This has motivated Samuel Brittan of the Financial Times to rethink his view of competitive markets. Sort of:As one of the few commentators to have always favored competitive market capitalism I have had to ask myself a few questions. Apart from scandals such as the Libor rate fixing, we have had the behavior of banks before the great recession; a trend to much greater concentration of income and wealth, squeezing the living standards of ordinary citizens; and one could go on.
So, after asking himself these questions, what does he propose?:Yet if anyone expects me to issue a clarion call for more state ownership and control, they will be disappointed. ... What then has gone wrong? ... Few of us like competition; and the tendency to form closely knit groups to keep outsiders at bay is probably as old as the human race. For pre-capitalist examples one has only to think of the medieval guilds, whether of craftsmen or Master Singers. More subtle are the practices of bankers, as they come disguised as services for customers. In summary, success has depended more on whom you know than what you know. Hence the catchphrase "crony capitalism". ...The biggest obstacle to reform is that insiders can devote time and energy to maintaining their position. For ordinary citizens, political reform is a sideshow that hardly repays such efforts. The protests in financial canters are a well-meant but ill-focused attempt to offset this bias.Yet nil desperandum. The UK corn laws were repealed and the US antitrust acts were passed; and in time both the financiers and the Eurocrats will be brought down.
So, no cause for despair? Not so sure about that (the changes he describes did not come easily). It feels a bit like the Libor scandal has produced a turning point, but the power hold on politicians is still as strong as ever. We've seen how some Democrats react if Obama so much as points a finger in the direction of the financial industry, and if Romney is elected does anyone think the government will get tougher with big banks, big pharma, or big anything else?
March 24, 2010 | Counterpunch
There was a time when the pen was mightier than the sword. That was a time when people believed in truth and regarded truth as an independent power and not as an auxiliary for government, class, race, ideological, personal, or financial interest.
Today Americans are ruled by propaganda. Americans have little regard for truth, little access to it, and little ability to recognize it.
Truth is an unwelcome entity. It is disturbing. It is off limits. Those who speak it run the risk of being branded "anti-American," "anti-semite" or "conspiracy theorist."
Truth is an inconvenience for government and for the interest groups whose campaign contributions control government.
Truth is an inconvenience for prosecutors who want convictions, not the discovery of innocence or guilt.
Truth is inconvenient for ideologues.
Today many whose goal once was the discovery of truth are now paid handsomely to hide it. "Free market economists" are paid to sell offshoring to the American people. High-productivity, high value-added American jobs are denigrated as dirty, old industrial jobs. Relicts from long ago, we are best shed of them. Their place has been taken by "the New Economy," a mythical economy that allegedly consists of high-tech white collar jobs in which Americans innovate and finance activities that occur offshore. All Americans need in order to participate in this "new economy" are finance degrees from Ivy League universities, and then they will work on Wall Street at million dollar jobs.
Economists who were once respectable took money to contribute to this myth of "the New Economy."
And not only economists sell their souls for filthy lucre. Recently we have had reports of medical doctors who, for money, have published in peer-reviewed journals concocted "studies" that hype this or that new medicine produced by pharmaceutical companies that paid for the "studies."
The Council of Europe is investigating the drug companies' role in hyping a false swine flu pandemic in order to gain billions of dollars in sales of the vaccine.
The media helped the US military hype its recent Marja offensive in Afghanistan, describing Marja as a city of 80,000 under Taliban control. It turns out that Marja is not urban but a collection of village farms.
And there is the global warming scandal, in which NGOs. the UN, and the nuclear industry colluded in concocting a doomsday scenario in order to create profit in pollution.
Wherever one looks, truth has fallen to money.
Wherever money is insufficient to bury the truth, ignorance, propaganda, and short memories finish the job.
I remember when, following CIA director William Colby's testimony before the Church Committee in the mid-1970s, presidents Gerald Ford and Ronald Reagan issued executive orders preventing the CIA and U.S. black-op groups from assassinating foreign leaders. In 2010 the US Congress was told by Dennis Blair, head of national intelligence, that the US now assassinates its own citizens in addition to foreign leaders.
When Blair told the House Intelligence Committee that US citizens no longer needed to be arrested, charged, tried, and convicted of a capital crime, just murdered on suspicion alone of being a "threat," he wasn't impeached. No investigation pursued. Nothing happened. There was no Church Committee. In the mid-1970s the CIA got into trouble for plots to kill Castro. Today it is American citizens who are on the hit list. Whatever objections there might be don't carry any weight. No one in government is in any trouble over the assassination of U.S. citizens by the U.S. government.
As an economist, I am astonished that the American economics profession has no awareness whatsoever that the U.S. economy has been destroyed by the offshoring of U.S. GDP to overseas countries. U.S. corporations, in pursuit of absolute advantage or lowest labor costs and maximum CEO "performance bonuses," have moved the production of goods and services marketed to Americans to China, India, and elsewhere abroad. When I read economists describe offshoring as free trade based on comparative advantage, I realize that there is no intelligence or integrity in the American economics profession.
Intelligence and integrity have been purchased by money. The transnational or global U.S. corporations pay multi-million dollar compensation packages to top managers, who achieve these "performance awards" by replacing U.S. labor with foreign labor. While Washington worries about "the Muslim threat," Wall Street, U.S. corporations and "free market" shills destroy the U.S. economy and the prospects of tens of millions of Americans.
Americans, or most of them, have proved to be putty in the hands of the police state.
Americans have bought into the government's claim that security requires the suspension of civil liberties and accountable government. Astonishingly, Americans, or most of them, believe that civil liberties, such as habeas corpus and due process, protect "terrorists," and not themselves. Many also believe that the Constitution is a tired old document that prevents government from exercising the kind of police state powers necessary to keep Americans safe and free.
Most Americans are unlikely to hear from anyone who would tell them any different.
I was associate editor and columnist for the Wall Street Journal. I was Business Week's first outside columnist, a position I held for 15 years. I was columnist for a decade for Scripps Howard News Service, carried in 300 newspapers. I was a columnist for the Washington Times and for newspapers in France and Italy and for a magazine in Germany. I was a contributor to the New York Times and a regular feature in the Los Angeles Times. Today I cannot publish in, or appear on, the American "mainstream media."
For the last six years I have been banned from the "mainstream media." My last column in the New York Times appeared in January, 2004, coauthored with Democratic U.S. Senator Charles Schumer representing New York. We addressed the offshoring of U.S. jobs. Our op-ed article produced a conference at the Brookings Institution in Washington, D.C. and live coverage by C-Span. A debate was launched. No such thing could happen today.
For years I was a mainstay at the Washington Times, producing credibility for the Moony newspaper as a Business Week columnist, former Wall Street Journal editor, and former Assistant Secretary of the U.S. Treasury. But when I began criticizing Bush's wars of aggression, the order came down to Mary Lou Forbes to cancel my column.
The American corporate media does not serve the truth. It serves the government and the interest groups that empower the government.
America's fate was sealed when the public and the anti-war movement bought the government's 9/11 conspiracy theory. The government's account of 9/11 is contradicted by much evidence. Nevertheless, this defining event of our time, which has launched the US on interminable wars of aggression and a domestic police state, is a taboo topic for investigation in the media. It is pointless to complain of war and a police state when one accepts the premise upon which they are based.
These trillion dollar wars have created financing problems for Washington's deficits and threaten the U.S. dollar's role as world reserve currency. The wars and the pressure that the budget deficits put on the dollar's value have put Social Security and Medicare on the chopping block. Former Goldman Sachs chairman and U.S. Treasury Secretary Hank Paulson is after these protections for the elderly. Fed chairman Bernanke is also after them. The Republicans are after them as well. These protections are called "entitlements" as if they are some sort of welfare that people have not paid for in payroll taxes all their working lives.
With over 21 per cent unemployment as measured by the methodology of 1980, with American jobs, GDP, and technology having been given to China and India, with war being Washington's greatest commitment, with the dollar over-burdened with debt, with civil liberty sacrificed to the "war on terror," the liberty and prosperity of the American people have been thrown into the trash bin of history.
The militarism of the U.S. and Israeli states, and Wall Street and corporate greed, will now run their course. As the pen is censored and its might extinguished, I am signing off.
PAUL CRAIG ROBERTS was an editor of the Wall Street Journal and an Assistant Secretary of the U.S. Treasury. His latest book, HOW THE ECONOMY WAS LOST, has just been published by CounterPunch/AK Press. He can be reached at: PaulCraigRoberts@yahoo.com
The White House has criticized Mitt Romney for his years at the helm of Bain Capital, pointing to a deal that led to the bankruptcy of GS Technologies, a Bain investment in Kansas City that went belly up in 2001 at the cost of 750 jobs. But the White House hasn't connected Romney's Bain to the larger scourge of casino capitalism. Not surprisingly, its criticism has quickly degenerated into a "he said, she said" feud over what proportion of the companies that Bain bought and loaded up with debt subsequently went broke (it's about 20 percent), and how many people lost their jobs relative to how many jobs were added because of Bain's financial maneuvers (that depends on when you start and stop the clock). And it has invited a Republican countercharge that the administration gambled away taxpayer money on its own bad bet, the Solyndra solar panel company.
But the real issue here isn't Bain's betting record. It's that Romney's Bain is part of the same system as Jamie Dimon's JPMorgan Chase, Jon Corzine's MF Global and Lloyd Blankfein's Goldman Sachs-a system that has turned much of the economy into a betting parlor that nearly imploded in 2008, destroying millions of jobs and devastating household incomes. The winners in this system are top Wall Street executives and traders, private-equity managers and hedge-fund moguls, and the losers are most of the rest of us. The system is largely responsible for the greatest concentration of the nation's income and wealth at the very top since the Gilded Age of the nineteenth century, with the richest 400 Americans owning as much as the bottom 150 million put together. And these multimillionaires and billionaires are now actively buying the 2012 election-and with it, American democracy.
The biggest players in this system have, like Romney, made their profits placing big bets with other people's money. If the bets go well, the players make out like bandits. If they go badly, the burden lands on average workers and taxpayers. The 750 peo- ple at GS Technologies who lost their jobs thanks to a bad deal engineered by Romney's Bain were a small foreshadowing of the 15 million who lost jobs after the cumulative dealmaking of the entire financial sector pushed the whole economy off a cliff. And relative to the cost to taxpayers of bailing out Wall Street, Solyndra is a rounding error.Connect the dots of casino capitalism, and you get Mitt Romney. The fortunes raked in by financial dealmakers depend on special goodies baked into the tax code such as "carried interest," which allows Romney and other partners in private-equity firms (as well as in many venture-capital and hedge funds) to treat their incomes as capital gains taxed at a maximum of 15 percent. This is how Romney managed to pay an average of 14 percent on more than $42 million of combined income in 2010 and 2011. But the carried-interest loophole makes no economic sense. Conservatives try to justify the tax code's generous preference for capital gains as a reward to risk-takers-but Romney and other private-equity partners risk little, if any, of their personal wealth. They mostly bet with other investors' money, including the pension savings of average working people.
Another goodie allows private-equity partners to sock away almost any amount of their earnings into a tax-deferred IRA, while the rest of us are limited to a few thousand dollars a year. The partners can merely low-ball the value of whatever portion of their investment partnership they put away-even valuing it at zero-because the tax code considers a partnership interest to have value only in the future. This explains how Romney's IRA is worth as much as $101 million. The tax code further subsidizes private equity and much of the rest of the financial sector by making interest on debt tax-deductible, while taxing profits and dividends. This creates huge incentives for financiers to find ways of substituting debt for equity and is a major reason America's biggest banks have leveraged America to the hilt. It's also why Romney's Bain and other private-equity partnerships have done the same to the companies they buy.
These maneuvers shift all the economic risk to debtors, who sometimes can't repay what they owe. That's rarely a problem for the financiers who engineer the deals; they're sufficiently diversified to withstand some losses, or they've already taken their profits and moved on. But piles of debt play havoc with the lives of real people in the real economy when the companies they work for can't meet their payments, or the banks they rely on stop lending money, or the contractors they depend on go broke-often with the result that they can't meet their own debt payments and lose their homes, cars and savings.
It took more than a decade for America to recover from the Great Crash of 1929 after the financial sector had gorged itself on debt, and it's taking years to recover from the more limited but still terrible crash of 2008. The same kinds of convulsions have occurred on a smaller scale at a host of companies since the go-go years of the 1980s, when private-equity firms like Bain began doing leveraged buyouts-taking over a target company, loading it up with debt, using the tax deduction that comes with the debt to boost the target company's profits, cutting payrolls and then reselling the company at a higher price.
Sometimes these maneuvers work, sometimes they end in disaster; but they always generate giant rewards for the dealmakers while shifting the risk to workers and taxpayers. In 1988 drugstore chain Revco went under when it couldn't meet its debt payments on a $1.6 billion leveraged buyout engineered by Salomon Brothers. In 1989 the private-equity firm of Kohlberg, Kravis, Roberts completed the notorious and ultimately disastrous buyout of RJR Nabisco for $31 billion, much of it in high-yield ("junk") bonds. In 1993 Bain Capital became a majority shareholder in GS Technologies and loaded it with debt. In 2001 it went down when it couldn't meet payments on that debt load. But even as these firms sank, Bain and the other dealmakers continued to collect lucrative fees-transaction fees, advisory fees, management fees-sucking the companies dry until the bitter end. According to a review by the New York Times of firms that went bankrupt on Romney's watch, Bain structured the deals so that its executives would always win, even if employees, creditors and Bain's own investors lost out. That's been Big Finance's MO.
... ... ...
We've entered a new Gilded Age, of which Mitt Romney is the perfect reflection. The original Gilded Age was a time of buoyant rich men with flashy white teeth, raging wealth and a measured disdain for anyone lacking those attributes, which was just about everyone else.
... ... ...
We've had wealthy presidents before, but they have been traitors to their class-Teddy Roosevelt storming against the "malefactors of great wealth" and busting up the trusts, Franklin Roosevelt railing against the "economic royalists" and raising their taxes, John F. Kennedy appealing to the conscience of the nation to conquer poverty. Romney is the opposite: he wants to do everything he can to make the superwealthy even wealthier and the poor even poorer, and he justifies it all with a thinly veiled social Darwinism.
Not incidentally, social Darwinism was also the reigning philosophy of the original Gilded Age, propounded in America more than a century ago by William Graham Sumner, a professor of political and social science at Yale, who twisted Charles Darwin's insights into a theory to justify the brazen inequality of that era: survival of the fittest. Romney uses the same logic when he accuses President Obama of creating an "entitlement society" simply because millions of desperate Americans have been forced to accept food stamps and unemployment insurance, or when he opines that government should not help distressed homeowners but instead let the market "hit the bottom," or enthuses over a House Republican budget that would cut $3.3 trillion from low-income programs over the next decade. It's survival of the fittest all over again. Sumner, too, warned against handouts to people he termed "negligent, shiftless, inefficient, silly, and imprudent."
When Romney simultaneously proposes to cut the taxes of households earning over $1 million by an average of $295,874 a year (according to an analysis of his proposals by the nonpartisan Tax Policy Center) because the rich are, allegedly, "job creators," he mimics Sumner's view that "millionaires are a product of natural selection, acting on the whole body of men to pick out those who can meet the requirement of certain work to be done." In truth, the whole of Republican trickle-down economics is nothing but repotted social Darwinism.
The Gilded Age was also the last time America came close to becoming a plutocracy-a system of government of, by and for the wealthy. It was an era when the lackeys of the very rich literally put sacks of money on the desks of pliant legislators, senators bore the nicknames of the giant companies whose interests they served ("the senator from Standard Oil"), and the kings of finance decided how the American economy would function.
The potential of great wealth in the hands of a relative few to undermine democratic institutions was a continuing concern in the nineteenth century as railroad, oil and financial magnates accumulated power. "Wealth, like suffrage, must be considerably distributed, to support a democratick republic," wrote Virginia Congressman John Taylor as early as 1814, "and hence, whatever draws a considerable proportion of either into a few hands, will destroy it. As power follows wealth, the majority must have wealth or lose power." Decades later, progressives like Louis Brandeis saw the choice starkly: "We may have democracy, or we may have wealth concentrated in the hands of a few, but we can't have both."
The reforms of the Progressive Era at the turn of the twentieth century saved American democracy from the robber barons, but the political power of great wealth has now resurfaced with a vengeance. And here again, Romney is the poster boy. Congress has so far failed to close the absurd carried-interest tax loophole, for example, because of generous donations by Bain Capital and other private-equity partners to both parties.
... ... ...
To be sure, Romney is no worse than any other casino capitalist of this new Gilded Age. All have been making big bets-collecting large sums when they pay off and imposing the risks and costs on the rest of us when they don't. Many have justified their growing wealth, along with the growing impoverishment of much of the rest of the nation, with beliefs strikingly similar to social Darwinism. And a significant number have transformed their winnings into the clout needed to protect the unrestrained betting and tax preferences that have fueled their fortunes, and to lower their tax rates even further. Wall Street has already all but eviscerated the Dodd-Frank Act, and it has even turned the so-called Volcker Rule-a watered-down version of the old Glass-Steagall Act, which established a firewall between commercial and investment banking-into a Swiss cheese of loopholes and exemptions.
... ... ...
So why don't Democrats connect these dots? It's not as if Americans harbor great admiration for financial dealmakers. According to the newly released twenty-fifth annual Pew Research Center poll on core values, nearly three-quarters of Americans believe "Wall Street only cares about making money for itself." That's not surprising, given that many are still bearing the scars of 2008. Nor are they pleased with the concentration of income and wealth at the top. Polls show a majority of Americans want taxes raised on the very rich, and a majority are opposed to the bailouts, subsidies and special tax breaks with which the wealthy have padded their nests.
Part of the answer, surely, is that elected Democrats are still almost as beholden to the wealthy for campaign funds as the Republicans, and don't want to bite the hand that feeds them. Wall Street can give most of its largesse to Romney this year and still have enough left over to tame many influential Democrats (look at the outcry from some of them when the White House took on Bain Capital). But I suspect a deeper reason for their reticence is that if they connect the dots and reveal Romney for what he is-the epitome of what's fundamentally wrong with our economy-they'll be admitting how serious our economic problems really are. They would have to acknowledge that the economic catastrophe that continues to cause us so much suffering is, at its root, a product of the gross inequality of income, wealth and political power in America's new Gilded Age, as well as the perverse incentives of casino capitalism.
May 24, 2012
By Simon Johnson
There are two diametrically opposed views of how the largest financial companies in our economy operate. On the one hand, there are those like Charles Ferguson, director of the Academy Award-winning documentary "Inside Job" and author of the new book, "Predator Nation." Mr. Ferguson takes the view that greed and immorality now prevail to an excessive degree at the heart of Wall Street.
Academics and other experts have become corrupted, the responsible regulators have been intellectually captured, and law enforcement officials refuse to act – despite the accumulation of evidence before their eyes.
"Inside Job" was gripping and emotional; "Predator Nation" contains many more specific details and evidence, as this excerpt dealing with academics (one Republican and one Democrat) makes clear.
The second view is that the people in charge of large banks and bank holding companies have done nothing wrong. To see this view in action, look no further than this week's debate about whether Jamie Dimon, chief executive of JPMorgan Chase, should resign from the board of the Federal Reserve Bank of New York. The New York Fed oversees his organization, including assessing whether it is taking dangerous risks, so there are reasonable questions about whether this creates a potential conflict of interest.
A balanced account of this debate appeared in American Banker, which kindly agreed to bring the entire article out from behind its paywall. The strongest statement from the pro-Dimon corner comes from Ernest Patrikis, a partner with White & Case L.L.P. and former general counsel of the New York Federal Reserve:
"I don't see Jamie Dimon's conflict of interest. What's the conflict? He's expected to represent the banks' view, the lenders' view."
Yet even people who are generally sympathetic to banks feel that there is a perception problem with Mr. Dimon's position. Treasury Secretary Timothy Geithner said exactly that to the "PBS NewsHour" last week.
Kenneth Guenther, the former head of the Independent Community Bankers of America, told American Banker:
"I do think there is a public perception problem when the head of the largest bank gets into a massive highly publicized trading loss, which he articulately condemns, when he's tied to the Federal Reserve Bank of New York, and the president of the Federal Reserve Bank is vice chair of the Federal Open Market Committee. There is a perception problem. I don't think there's any way around it."
What exactly is a conflict of interest? Narrowly defined, an actual conflict of interest would involve using public office for personal financial gain – and would be a matter for criminal prosecution.
There is only one case that I am aware of in which a director of the New York Fed went to prison for such a violation – Robert A. Rough was indicted in December 1988, on charges that he leaked sensitive interest-rate information to a brokerage firm. He was sentenced to six months in prison.
More broadly, however, in modern America we use the term "conflict of interest" when we believe someone may be promoting private interests while acting in a public role.
Allowing big bankers to become too influential is an important part of what Mr. Ferguson writes about. If you don't understand the channels through which influence actually works in the United States today, you need to see "Inside Job," which touched a nerve and won an Oscar precisely because it is profoundly undemocratic when powerful people are able behave in this way.
Elizabeth Warren, a Democratic candidate for the Senate in Massachusetts, said Mr. Dimon should resign from the board of the New York Fed. The recent spectacular trading losses at his company require a full investigation, which should include an examination of how the supervision process broke down. How can this be anything other than awkward for the New York Fed while Mr. Dimon – hardly known as a shrinking violet – sits on its board?
Senator Bernie Sanders, independent of Vermont, would go further, proposing legislation that would remove any bankers from the boards of Federal Reserve banks. For more background, you may want to consult Page 65 and other parts of this report from the Government Accountability Office, which deal with potential conflicts of interest in the Federal Reserve System, or at least read Senator Sanders's summary of the report.
To be clear, directors of the New York Fed are in principle kept away from bank-supervision matters – a point that was codified in December 2010, following the passage of the Dodd-Frank financial reform legislation.
Under the current bylaws, directors are not involved in appointing, monitoring or compensating the head of supervision, although they have input into the selection and remuneration of the head of research (an important position, as this person helps to shape the Fed's view on bank capital and all technical matters relative to risk management), and they oversee other management issues. Bill Dudley, the president of the New York Fed, interacts with the board at least several times a month, as you can see from his schedule.
Mr. Dudley, a former Goldman Sachs executive, was originally appointed president of the New York Fed by a board that included Mr. Dimon as a voting member. The Dodd-Frank legislation stripped so-called "Class A" directors, of which Mr. Dimon is one, from voting on such appointments. Mr. Dudley was subsequently reappointed by the Class B and Class C directors of the board. (For more on the different classes of directors, see this page)
Mr. Dimon has also been an outspoken opponent of financial reform of late – including the Volcker Rule (on proprietary trading) and attempts to strengthen capital requirements. He is an intensely political figure, despite the fact that an important footnote in the Board of Governors' policy on political activity by Reserve Bank Directors says,
In all instances, directors should avoid any political activity that would publicly identify the director as being associated with the Federal Reserve System or would embarrass the System or raise questions about the independence of the director or the ability to perform Federal Reserve duties.
Directors are allowed to lobby and engage in other specific activities. The issue is whether these actions undermine the effectiveness of the New York Fed.
There is recent precedent for New York Fed board members resigning when there is a perceived conflict of interest – and when the legitimacy of the Federal Reserve System would undoubtedly have been undermined if they had refused to resign.
Dick Fuld, the chief executive of Lehman Brothers, resigned (on Thursday, September 11, 2008) shortly before his firm collapsed (on September 15, but its last day of business was Friday, September 12) – and presumably because the New York Fed was at the center of intense discussions about who should suffer what kind of losses or get rescued. Did he resign of his own volition or was he encouraged to resign?
Stephen Friedman, then the former chief executive of Goldman Sachs, resigned in early 2009 when it became clear that he had bought Goldman stock after Goldman became a bank and therefore fell under the supervision of the New York Fed.
Mr. Friedman was chairman of the New York Fed at that time. (To be clear, Mr. Friedman was not involved in any of the decisions that saved Goldman in fall 2008, and I am not accusing him of using his public position for personal financial gain.)
For those of you keeping score at home, Mr. Fuld was a Class B director and Mr. Friedman was a Class C director.
If you think Mr. Dimon should resign from the New York Fed, you can express your opinion by signing this on-line petition, which I drafted. (For more background on why he should resign, see this blog post.)
If Mr. Dimon refuses to resign – as seems likely – he can removed by the Board of Governors of the Federal Reserve System (not by his fellow directors at the New York Fed). The petition is therefore addressed to the Board of Governors.
There is an undeniable perception problem. It is damaging the legitimacy of the Federal Reserve. As Treasury Secretary Geithner implied, this must be "addressed" – a great Washington euphemism – by Mr. Dimon leaving the board of the New York Fed.
An edited version of this blog post appeared this morning on the NYT.com's Economix; it is used here with permission. If you would like to reproduce the entire column, please contact the New York Times.
mattmossmanNot impressed by that American Banker article. If the Fed needs to get the view of the banks, is having them on the board of a regulatory agency the only way to do so? The reporter should have asked Ernest Patrikis that. If the Fed would benefit from getting perspective from outside Washington, is having Jamie Dimon on the board of the NY Fed the only way to get that? Should have asked Chip MacDonald that. If its perception and not reality, shouldn't Karen Shaw Petrou be asked why, after what's happened, she feels that way?Vern McKinley
We all know what the common sense position is about having a bank president on the board of a banking regulator. There should be more burden of proof placed upon the people insisting that this is fine. Not enough to just cite a perception/reality gap.This gets back to the creation of the Federal Reserve in 1913/1914. It was a creation of bankers for bankers. A much more substantial change would be to make the FRBNY subject to the Freedom of Information Act. The Board in Washington is, the FRBNY is not. Makes no sense.The Bond ManWhere was the "well documented propensity for listening to his risk management team (where the problem was caught)", relating to these particular criminal or MASSIVELY FRAUDULENT activities??:Anonymous
Incidentally, this IS NOT a "B" movie plot, it's a conspiracy to defraud hard-working Americans of the fruits of HONEST LABOR~~http://www.huffingtonpost.com/2012/05/24/bain-capital-tony-soprano_n_1542249.htmlJames TaylorI am absolutely convinced that after runaway health care costs, TBTF is the next financial disaster facing the country. But here is what scares the crap of out me. Jamie Dimon is a pretty good guy. Maybe the only one on Wall Street. So if you don't like him, think about the rest. Then remember that Goldman Sachs runs the U.S. Treasury (Timmy is just marking time until he gets his Million Dollar job on the Street.)Think about that for a minute and you'll get scared too.The Bond ManBeing a pretty good guy isn't really the issue, imo. He may be a nice guy, he looks like a nice guy to me, but some things his bank have done, as linked above, smack of rank criminality.The Bond Man
If we had an independent and functioning justice system, I think people like Mr. Dimon would have been indicted and convicted long ago.
He's lucky we don't."It is a blatant conflict of interest for Jamie Dimon, the CEO and chairman of JPMorgan Chase, to serve on the New York Fed's board of directors," Senator Bernie Sanders (I-VT) said in introducing the bill. "If this is not a clear example of the fox guarding the henhouse, I don't know what is."William Barclay
The chorus of boos intensifies! Simon, of course, is right the hell on!Dimon and JPMorgan Chase have done a better job of explaining why too big to fail is too big, period than any policy wonk could possibly do.
JPMorgan Chase, Cit, B of A and others with assets over X% of US GDP should be broken up.
BTW, it is possible to have large – even very large – banks without all the incompetence and leveraged risk taking that threaten the economy as a whole: just look next door (Canada – no banks failed in the 1930s, none failed in the 2007s. Of course, they couldn't do all the exciting stuff that makes banking soooooo important and financially rewarding.
I know Americans HATE to think that some other country got it right and we didn't, but let's look around.
June 04, 2012 | Economist's ViewWhy don't those in power listen to Joseph Stiglitz and Paul Krugman?:Our Most Widely Ignored Public Intellectuals, by Robert Kuttner: ...As the most prestigious economic dissenters of this era, Joseph Stiglitz and Paul Krugman form a category of two: astonishingly prescient, widely read, and largely ignored by those in power. ...
If these eminent thinkers are at the edge of economic orthodoxy, why are they marginalized within the corridors of power? One reason is that politics, not surprisingly, tends to get personal. Both Stiglitz and Krugman have decided to air their views in public rather than operating as discreet outside members of a kitchen cabinet... Stiglitz, even more than Krugman, has not been shy about criticizing Summers and Treasury Secretary Timothy Geithner by name, and the disfavor has been richly returned. Though Krugman's column praises the Obama administration when the president gives Krugman half a reason to do so, the White House accurately perceives him and Stiglitz as off-message and part of the opposition.
More fundamental to their marginalization is the relative radicalism of what Krugman and Stiglitz are advocating in our conservative era, one in which even Democratic presidents have done little to reverse unconstrained finance, shrunken government, and deepening inequality. To embrace their wisdom would require something close to a political revolution. So two of our most lauded economists remain prophets with little power to change events. America would be a far healthier country if they broke through.
Jeffrey Stewart:This is a relatively easy puzzle to solve. It absolutely doesn't matter to politicians and those funding their campaigns that Krugman and Stiglitz are 100% correct. If Krugman and Stiglitz were advocating policies that benefited the wealthy rather than the majority of the population, they would be listened to and have influential positions in any administration. There is a near complete capture of the state by capital. This means that only policies that directly benefit financial, industrial and commercial capitalist and only indirectly the working class, e.g., trickle down economics of tax cuts and deregulation get a hearing and are considered "serious," "responsible" and in the "mainstream" i.e., not "radical" or "extreme."
"In the domain of Political Economy, free scientific inquiry meets not merely the same enemies as in all other domains. The peculiar nature of the materials it deals with, summons as foes into the field of battle the most violent, mean and malignant passions of the human breast, the Furies of private interest."
MRJ said in reply to Darryl FKA Ron...
I like your comment about them being like each other.
One example: The right wing today includes a large contingent who actively desire and promote the failure of the US, both economically and politically, so that their side can win the up-coming election, which is strikingly reminiscent of Lenin's tactics prior to the Russian Revolution.
Seth said in reply to Jeffrey Stewart...
Correct. Krugman and Stiglitz are not being ignored by accident or simple misunderstanding. They are being studiously ignored. They are met with deep sighs and 'polite' eyes are averted in the hope that K & S will tire themselves out and simply shut up.
Here was my reaction to Krugman's recent "I'm Not Clubbable" post:
Clubbable is a synonym for Very Serious: it means taking social cues from higher status peers as the basis for evaluating information. Rather than evaluating claims by reference to facts and their logical connections, a VSP understands that demonstrating loyalty to the status hierarchy will better serve their personal interests. Demonstrated failure to conform to social expectations by stubbornly sticking with conclusions drawn from reasoned argument will make clubbable people acutely uncomfortable. They need to disassociate themselves lest they gain a reputation as a 'fellow-traveller' with disloyal types.
This is why economics went seriously wrong -- indeed the discipline quite simply 'sold out' -- when it abandoned attempts to take account of power. Power *constrains* economic outcomes, markets merely optimize within the constraints set by power.
The irony is that this sell-out is what gives economics professors the cache required to have an audience among the powerful in the first place. But when you try to speak the truth, you begin to sound uncomfortably like those scary Marxists the VSP's thought they had managed to purge many years ago.
Policy is made by [the most senior] members of the club. Your role in their world is to justify the policies they derive from their need to reinforce the status quo power structure. I'm glad you refuse to play that sycophantic part in their little morality play, but it isn't at all mysterious why you are treated the way Cassandra was.
An excellent example of this pro-capitalist bias is the capitalist, corporate media and VSP fawning over the Ryan budget while the Progressive Caucus' Budget For All received...crickets.
"It's been really frustrating to watch policymakers listen to the people who got it wrong again and again, not just before the crisis but during it as well, while ignoring the people who largely got things right, and then wonder why the policies weren't more effective. If they'd listened, and it's not too late to start, things could be better today." The policymakers wanted it wrong. The goal is to establish Ayn Rand's vision for America where the sociopath is the most venerated leader of all in business or politics. A well managed pseudo-crisis works wonders for scaring the masses into the slaughterhouses.
Paul Krugman: Things I Didn't Say
From John Heilemann's article about the falling out between Obama and Wall Street:
After countless rehearsals of the options, Obama wanted to hear a broader range of voices. So in April, a dinner was set up at the White House with the president and a clutch of big-name economists: Paul Krugman, Joseph Stiglitz, Jeffrey Sachs, Alan Blinder, Kenneth Rogoff. "That turned out to be a defining moment in the debate," Geithner told me. "Partly because they were all disagreeing with each other, and partly because they knew what they were against but not exactly what they were for and what it entailed-except Krugman. He was the only one willing to say, 'Look, there's a good case for nationalizing, but if you do, you have to understand two things: One, it's incredibly expensive, it'll cost trillions; and two, you have to guarantee everything.' " Once again, Obama cast his lot with Geithner. Uh, no. I never said that it would cost trillions of dollars. On the contrary, I didn't think taking over Citi or B of A, which had near-zero market caps at the time, would cost much at all. I did say that we'd have to guarantee the debts of the seized banks, much as the Swedes did; but I think I said then, and certainly believed, that we were de facto guaranteeing those debts anyway - that we had already socialized the possible losses, and that the point was to give taxpayers a share of the potential gains.
I'm glad to get credit for being more realistic than the other guys - but Geithner seems to be putting a spin on what I actually said.
John Heilmann's article here:
Mark A. Sadowski:
"Given his support for Hillary Clinton, it is hard to take Krugman seriously when he lambaste the Obama administration for centrism and compromising progressive values."
As Krugman has pointed out again and again Obama didn't pose as a Nation-type progressive, then suddenly turn to the right after he won the Democratic nomination. He was always slightly less progressive than Hillary Clinton on domestic issues, and more than slightly on health care.
Mundus vult decipi, ergo decipiatur
Oh please the Hill and Barry different in practice
Hill would use the same people and get the same results or less Given her cave factor under pressure
Mark A. Sadowski:
"Given her cave factor under pressure"
Give me a break.
Obama routinely stakes out a postion just to the left of the opposition, not because he's planning any grand Bill Clintonesque triangulation strategies, but because he *really is* the Republican-lite he's always said that he was.
But then he *always* gives into the Republicans and throws a pony into the deal for good measure.
Barry should write a book on "The Art of the Cave-In" when this thing is all over.
Mike said in reply to Sarah...
It is not just Obama. In general, modern day Democrats are to the right of Nixon. They are not liberal or progressive.
I have debated with many on the so-called left about how poor Obama's economic policies have been, and they either typically defend his policies or outright champion them.
It is flat out bizarre, but this is the land of confusion where Democrats are anything but liberal and Republicans are anything but conservative. Neither party takes kindly to criticism since they are too busy looking to blame the other party for their poor performance since it is their best chance to retain power.
Darryl FKA Ron:
Ignoring intellectuals is nothing new or singular in the US. Frederick Perls was out-voted by big pharma in the AMA/APA. Ian Mitroff has met much the same resistance as Peter Drucker. Drucker received much acclaim, but almost no one ever applied his practices. They were managing for different results. Ignored intellectuals are a dime a dozen. I prefer the Stig myself, but neither one should feel like the lone ranger. Now Joe Schumpeter was an intellectual that did not get ignored. So, it just depends upon what you are selling.
The real irony of this is that the purpose of government should actually be to protect the one percent from themselves and preserve the economy for all. As a retired history professor friend recently told me, the way to understand the current Greek econodrama is to read Arisophanes 'The Acharnians', which I wrote about in a piece entitled 'Hedging the Apocalypse' at http://somewhatlogically.com/?p=598 which is mostly raises the question as to why the financial community fails to learn from others about management of high risk situations, such as nuclear weapons and aircraft safety.
What is so disturbing is that what is going to happen is pretty apparent if you take a look from a perspective outside the current economic debate, and alternate methods of modeling the economy. (I'm interested in analog simulations to illuminate environmental and resource utilization) I can't resist posting a link to a piece that I wrote in 2008, from 'Too Big to Fail to Too Large to Care' at http://somewhatlogically.com/?p=51
Krugman and Stiglitz are sadly right, but tend to put their answers in mostly economic terms, which don't really seem to resonate with the public, as did Roosevelt's specific programs, such as the REA and federal power projects. As Brad Delong's wife said in a recent post on his blog, referring to the REA "Thankee Mr. Roosevelt"
ilsm said in reply to John Hulls...
The foundation of the democratic party goes back to Andrew Jackson or before, Jefferson.
Jackson fought the bank because the US bank threatened to bribe the lower chanber from being the peoples' house.
There was always the feeling that the elites were filled with vice and would corrupt the virtues that the masses would fit to the republic.
TR and FDR were fans of Jackson as was Truman.
A respect for Old Hickory is in order.
Darryl FKA Ron said in reply to John Hulls...
Pretty kool dude. Cross disciplinary science is a must in a modern world, but the econ world has not all got on board with that yet. I just had time to skim the first article, but was smiling the whole time.
Are you familiar with Ian Mitroff?
Here is a list of his books copied from Wiki - just to give you some idea of his range:
- 1974. The Subjective Side of Science: A Philosophical Inquiry into the Psychology of the Apollo Moon Scientists. Elsevier, Amsterdam (reissued in 1984 by Intersystems Publishers, Seaside, California).
- 1978. Methodological Approaches to Social Science: Integrating Divergent Concepts and Theories. With Ralph Kilmann. Jossey-Bass, San Francisco.
- 1981. Challenging Strategic Planning Assumptions, Theory, Cases, and Techniques. With Richard O. Mason. John Wiley, New York.
- 1982. Creating A Dialectical Social Science: Concepts, Methods, and Models. With Richard O. Mason and D. Reidel. John Wiley, New York.
- 1983 The 1980 Census: Policymaking Amid Turbulence. With Richard O. Mason and V.P. Barabba. Lexington Books, Massachusetts.
- 1983. Stakeholders of the Organizational Mind: Toward A New View of Policy Making. Jossey-Bass, San Francisco.
- 1984. Corporate Tragedies, Product Tampering, Sabotage, and Other Catastrophes. With Ralph Kilmann. Praeger, New York.
- 1987. Business Not As Usual, Rethinking Our Individual, Corporate, and Industrial Strategies for Global Competition. Jossey-Bass, San Francisco.
- 1988. Break-Away Thinking, How To Challenge Your Business Assumptions. John Wiley, New York.
- 1989. The Unreality Industry, The Deliberate Manufacturing of Falsehood and What It Is Doing to Our Lives. With Bennis, Warren. Birch Lane Press, New York.
- 1990. We're So Big And Powerful Nothing Bad Can Happen To Us: An Investigation of America's Crisis-Prone Corporations. With Thierry Pauchant. Birch Lane Press, New York.
- 1992. The Unbounded Mind: Breaking the Chains of Traditional Business Thinking. With Harold A. Linstone. Oxford University Press.
- 1992. Transforming the Crisis-Prone Organization. With Thierry Pauchant. Jossey-Bass, San Francisco.
- 1993. Crisis Management: A Diagnostic Guide for Improving Your Organization's Crisis-Preparedness. With Christine M. Pearson. Jossey-Bass, San Francisco.
- 1994. The Challenge of the 21st Century: Managing Technology and Ourselves in a Shrinking World. With Harold A Linstone. State University of New York Press, Albany, New York.
- 1994. Framebreak: The Radical Redesign of American Business. With Richard O. Mason, and Christine M. Pearson. Jossey-Bass, San Francisco.
- 1996. The Essential Guide to Managing Corporate Crises.
- 1998. Smart Thinking for Crazy Times: The Art of Solving the Right Problems. With Christine M. Pearson, and Katharine L. Harrington. Oxford University Press, New York. The Management of Crises and Paradoxes: Preventing the Destructive Effects of Organizations (in French). H.E.C., Montreal, Canada.
- 1999. A Spiritual Audit of Corporate America: A Hard Look at Spirituality, Religion, and Values in the Workplace. With Elizabeth A. Denton. Jossey-Bass Publishers Inc., San Francisco.
- 2000. Managing Crises Before They Happen: What Every Executive Needs to Know About Crisis Management. With Gus Anagnos. AMACOM, New York.
- 2003. Crisis Leadership: Planning for the Unthinkable. John Wiley, New York.
- 2005. Why Some Companies Emerge Stronger And Better From a Crisis: Seven Essential Lessons For Surviving Disaster. AMACOM, New York. Ian I. Mitroff and Abraham Silvers, Dirty Rotten Strategies: How We Trick Ourselves and Others into Solving the Wrong Problems Precisely, Stanford Business Press (2009), hardcover, 210 pages, ISBN 978-0-8047-5996-0
- 2011. "Swans, Swine, and Swindlers: Coping With The Growing Threat of Mega Crises and Mega Messes". With Can M. Alpaslan. Stanford Business Press.
Dirty Rotten Strategies is pretty good. I am going to have to get We're So Big And Powerful Nothing Bad Can Happen To Us.
Stiglitz is more of an economic hero than Krugman, because Stiglitz talks more about sustainable economics and living wages...
The Huffington Post
I wish President Obama would draw the obvious connection between Bain Capital and JPMorgan Chase.
That way his so-called "attack" on private equity is neither a personal attack on Mitt Romney nor a generalized attack on American business.
It's an attack on a particular kind of capitalism that Romney and JPMorgan both practice: Using other peoples' money to make big bets which, if they go wrong, can wreak havoc on the economy.
It's the substitution of casino capitalism for real capitalism, the dominance of the betting parlor over the real business of America, financial innovation rather than product innovation.
It's been terrible for the American economy and for our democracy.
It's also why Obama has to come out swinging about JPMorgan. The JPMorgan Chase debacle would have been prevented if the Volcker Rule were sufficiently strict, prohibiting banks from using commercial deposits to make bets except very specific offsetting bets (hedges) on narrow classes of trades.
But Jamie Dimon and JPMorgan have been lobbying like mad to loosen the Volcker Rule and widen that exception to include the very kind of reckless bets JPMorgan made. And they're still at it, as evidenced by Dimon's current claim that the rule that eventually emerges would allow those bets.
As a practical matter, the Volcker Rule is hopeless. It was intended to be Glass-Steagall lite -- a more nuanced version of the original Depression-era law that separated commercial from investment banking. But JPMorgan has proven that any nuance -- any exception -- will be stretched beyond recognition by the big banks.
So much money can be made when these bets turn out well that the big banks will stop at nothing to keep the spigot open.
There's no alternative but to resurrect Glass-Steagall as a whole. Even then, the biggest banks are still too big to fail or to regulate. We also need to heed the recent advice of the Dallas branch of the Federal Reserve, and break them up.
At the same time, there's no point to the "carried interest" loophole that allows private-equity managers like Mitt Romney to treat their incomes as capital gains, taxed at only 15 percent, when they've risked no money of their own.
If private equity were good for America it wouldn't need this or the other tax preference it depends on, elevating debt over equity. But the private equity industry has huge political clout, which is why these tax preferences remain.
Get it? Bain Capital and JPMorgan are parts of the same problem. The president should be leading the charge against both.
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